Canada and the US top the giving chart, coming up high on instances of money and time giving.  Although compared to the top performers of Europe, the difference is hardly noticeable.

The interesting difference comes from how giving changes with age. In no other region in the world, does giving rise at quite the same consistent pace as age as in North America.  Given US (and Canada) hardly has the most “secure” welfare system for the old and presumably eventually sickly, it is interesting how the upward slope contrasts with that in Australasia and Western Europe.

Do Americans just believe more in “giving it all away” when faced with the prospects of death, or are there more plausible, and perhaps cynical explanations out there?

source: Charities Aid Foundation

US still winning in labour mobility, which is not at all surprising but still reassuring given the averse impact the sluggish housing market seems to have had on mobility in the past year.

I still think it’s a bit of a paradox that while labour mobility is much encouraged in the US, it still work counter to the goal that home ownership subsidies offered by the government, which encourages social stability and putting roots  down in a community.  Which ideally, I suppose, will help one anchor down and develop a sense of community in the short and medium term, but not strong enough to keep one from packing up and driving off in search of better lives if the right opportunity knocks on the door (or none where you happen to be).

BUSINESS & FINANCE
So, just what did Canada do?
blogs.wsj.com – Europe’s welfare system is as unsustainable as Canada’s was, only they managed to avoid doing anything about it for a long time. …
Gulf Coast disaster: Will BP be bought or bankrupt?
CNN Money – Can BP afford to exist as a standalone company? Could it go bankrupt? Will BP have to cut dividends? Or will it survive intact, bruised a bit but otherwise just fine? …
Euro ‘will be dead in five years’
telegraph.co.uk – Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. …
Fiscal discipline alone will not overcome the eurozone’s troubles
blogs.ft.com – Whyte says, “deficits and surpluses are umbilically linked: one entails the other”. Alas, there appear to be very few policymakers in Germany willing to consider an alternative. …
Jobs and kids: Female employment and fertility in rural China
Voxeu – Non-agricultural jobs for women reduce the number of children per woman by 0.64 and the probability of having more than one child by 54.8%. …

TECH & TELECOM
Dear Hotmail: What the hell happened to you?
cracked.com – Somewhere along the line you stumbled. You got sloppy or you just gave up, and we drifted apart. Now you’ve been lapped by the technology and features of Gmail. …
Behind Foursquare and Gowalla: The great check-in battle
wired.co.uk – All over the web, reward-based achievement games have begun to blossom as a means of encouraging specific behaviour. …
Why I sold Zappos
inc.com – Tony Hsieh built his online shoe retailer into an e-commerce powerhouse. But with credit tightening and investors eyeing the exits, Hsieh was forced to ask: Was selling Zappos really the only way to save it? …

THE REST
The clash of sports civilizations
drezner.foreignpolicy.com – As in industry, the government picks national “winners” in sports and funnels cash to create champions and win medals. But the support typically goes to sports in which Chinese have traditionally excelled. Soccer teams here are left to look for private sponsorship. …
An inside look at Bernie Madoff’s life in prison
nymag.com – From the day Madoffarrived at the softer of Butner’s two medium-security facilities in handcuffs and shackles, he was a celebrity, even if his admirers were now murderers and sex offenders. …
There is no one either good or bad, but circumstances make them so
independent.co.uk – Moral character is fragile much more often than it is robust. Most people have no robust character at all. …
Brain scans being misused as lie detectors, experts say
news.bbc.co.uk – Experts warn that measures are needed to stop brain scans being misused by courts, insurers and employers. …

I can’t say it better than what’s already been said below.  Outrage over Arizona’s new law that mandates citizens to carry IDs at all time has been the way of life in Europe for years.

In America (and really in the Anglo-Saxon world in general) there is a very different attitude toward national identification than in Europe. There is no national ID card in the US. In fact, many have argued that to require people to get such an ID would be unconstitutional. Several states are even challenging a 2005 federal initiative that would just harmonise the way state driving licenses are designed. Because there is no national ID most Americans use their driving license as identification.

This is pretty true.  In Canada, you can pretty much get away with a driver’s license plus your social insurance number card for the majority of your bureaucratic dealings with the government.

Contrast that with the Netherlands.  As a side note, although I give the country a hard time, I hardly think that goes on in this country is any more paternalistic and Big Brother-like than any of its continental neighbours.

Exhibit one: I had to register with the local government as soon as I enter the country to notify them of my presence.  And should I move, they must be notified at all times.  For us, address changes are made out of a sense economic necessity and convenience (you want to get your tax returns, insurance papers, bills and home-order catalogues), not government dictation.

Exhibit two: In order to verify my partnership status with my boyfriend to renew my residence permit, I had to provide a not-married certificate from Canada.  It was simply inconceivable to the Dutch government that we had no such document in Canada, since marriage is a provincial matter and not legislated federally.  With much resignation, I handed over 30 euros to the Canadian embassy for a piece of paper with zero significance, which they handed over with a wink.  This piece of paper was then taken to a Dutch bureaucratic counter for a 10 euro stamp to validate its meaningless authenticity.

Exhibit three: Two uniformed policemen knocked on my door one day to check if a long-departed person previously registered under my current address is still in the country.  The fact that the police manually track down people to ensure they have left the country is crazy.  The comforting part of the story is that they were about two years too late.

Exhibit four: People love to whine here as they do anywhere.  But in my years here so far, I have yet to hear anyone complain about the mandatory ID-carrying rule in place, nor any grumbling over the new biometric passport system in place for its citizens.

There is one important distinction between the Arizona law and the European ID requirements though. In Europe all people are legally required to carry ID, not just foreigners. So the laws don’t specifically target foreigners or minorities. Now, as many minorities in continental Europe will tell you (and as is patently observable on the street), in practice it is usually only minorities who are ever randomly stopped on the street and asked for ID.

It is curious that despite the relatively elitist and supremely bureaucratic leadership structure of Europe (regardless of what international indexes says and what they claim through media outlets), Europeans in general remain ever so docile and trusting in its relationship with its governments, especially curious considering the long and painful history its people suffered through religious and ethnic discrimination and outright prosecution.

I have no explanation for the above-cited Anglo-Saxon adverseness to this sort of government oversight, except to conjecture the correlation has to do with the fact that the majority of English-speaking countries belong to the New World.  And self-selection meant that those that chose to make the trans-ocean move from wherever they were from to where they are now, did so because they were victims of some kind of discrimination back in their own country, whether they be political, economic, religious or ethnic.  As descendants of this collective mentality, we are generally weary of what we perceive to be government intervention and control as represented by those kind of ID-carrying requirements.

Ok, so lately things haven’t gone too well in the US and UK.  But despite the obvious curtailments of personal freedom after 9/11, we are at least keeping the debate alive.

This didn’t happen in Europe, did it?

Unless you live in an emerging economy where the recession hasn’t hit public finances, for the rest of us that are stuck on the wrong side of the divide, it’s cutback time baby!

In the US, public deficits are still tolerated on the backs of a still troubled economy and underlying optimism that when things turn around, the coffers will fill up again.  In Europe, there’s little room for such fantastically sanguine outlook.  From Club Med countries that are now forced to scale back, to Britain where deficit reduction debates as one of the driving issues of next week’s election, to the northern Calvinists and Lutherans where austerity is once again on the “in” word, public spending cuts is the inevitable future.

When public spending cuts took place in Canada back in the 90s, we had school strikes every other year, and public transit strike pretty much every single year.  Now the talks of cutbacks is happening again both in Canada – conservative, considering we’ve ran current account surpluses for the past 12 years, as well as here in the Netherlands.

Here are some of the ideas brain-stormed so far, the most contentious ones are the most universal – namely, healthcare and mortgage interest deduction.

Let me quickly go over both.

Healthcare reforms during the past decade have made healthcare a considerable cost in every family’s budget here in the Netherlands.  During the American health reform debates, the Dutch healthcare system was held up as the system to aspire to.  Coming from the land of universal (and more or less free) healthcare, I beg to differ.

In Canada (and to a lesser extent also in America), healthcare is a cost shared between the government and businesses that employ individuals.  Those of us from the system knows that a job is not a job unless it comes with “benefits”, which in my experience, includes coverage for all preventative and curative dental, optometrist and other rehabilitative care.  But all is not perfect.  In recent years, a number of provinces in Canada now require a yearly income-tested payment from its residents, at no more than a few hundred dollars a year.

After the early 2000s healthcare reform, healthcare in the Netherlands became a cost shared between the individual and the government – businesses disappear from the equation altogether.  Depending on your age, sex, and the level of luxury of your coverage plan, you can expect to pay anything between 70 to a few hundreds euros a month.  And like car insurance, your package will also determine how much of a co-pay amount you have to shell out, should you need to see a specialist.  For example, if you elect to see a, say, dermatologist for a skin rash, and the visit costs 300 euros, then be prepared to shell out the first 170 (ballpark) as your deductible.

Now that a Dutch election is expected sometime in the early summer, politicians are trying to make ends meet however they can.  One of the first things they pounce on is to raise the deductible amount from the current 170 (again, ballpark and dependent on your specific package), to something like 700 euros.  Outrage ensues.

The second cutback victim is the contentious mortgage interest rate deduction scheme in the Netherlands.  Long story short, the Netherlands, along with the US, is one of very few countries in the world that allows a household to deduct its mortgage interest expenditures from its tax bill.  This alone costs the government 15 billion euros a year.

Back in the early 2000s, the government tightened a number of rules, mainly to stamp out people abusing the system by taking on unnecessarily long and large mortgages, and taking them out on a second house, for instance.  This time around, the very soundness of the policy and system is being debated.

As a matter of principle, enough Dutch support the abolition of this specific tax rebate.  And it makes sense to.

First off, tax based mortgage interest deduction favours the rich.  The higher one’s income is, the more mortgage one is able to carry, and it follows that the higher (both in percentage and in total amount) interest deduction subsidy one is able to get back from the government.

Two, there is little evidence that decades of subsidies have made as big of an impact on home ownership as one might like.  Home ownership percentages for the old and wealthy stays high, while the rate for the young and the poor remains relatively low.  It would follow that since the younger and poorer are not able to carry mortgages beyond what their salaries allow, they benefit less from the subsidies, and some may be persuaded to stay within the subsidized rental market (social housing account for 30% of all dwellings in the country, and in major cities 50%), also costing the government a bundle.

Three, it is also clear that in order to make ends meet, something will have to give.  You can ease up on the tax rebates on mortgages, or you can raise taxes to make up for the fiscal deficit.  It’s the same pot of money end of the day, it’s just a matter of how many times it changes hands.

Lastly, it cannot be lost on the government that it’s the one bridging the payment gap between households and banks.  By subsidizing interest payments, the government incentives households to prolong their mortgage lengths and increase their sizes, which no doubt suits banks just fine.  It is clearly too costly for the government to bare for the long term, and I also wonder whether the delay of full-out housing ownership (presumably the longer you have a mortgage for, the less equity build-up you have in your house at any given point in time) feeds people a rather false sense of financial well-being, and whether that has an adverse impact on life-time wealth accumulation.

End of the day, as much sense as it would make to abolish the system, nobody wants to see a sudden drop in housing value across the country that would freeze up the real estate market.  The most likely scenario is the UK or Swedish method of gradually phrasing out the system over 20 years. But whether the next government has the political will to tackle this growing elephant in the room is something else.

I don’t normally write about Canada, usually because it is always blissfully uneventful back home.  But it looks as though I missed out on a couple of pieces of news the past week that might have suggest almost certain changes in the Canadian healthcare system for the foreseeable future (h/t to my mom!).

First off, facing steep demographic declines and consecutively higher spending on health care for the past decades, the government of Quebec has proposed a $25-per-visit charge for doctor’s visit.

While I am not all that familiar with Quebec’s health-care system, as each province has the mandate to run its own, the concept of paying (somewhat) for healthcare is no longer new to the rest of the country.  A number of provinces, including Ontario, for the past few years, has put in place an income-based healthcare contribution, usually paid at tax times.  The amount is income-tested, and does not exceeds more than a few hundred dollars even for the richest.  However, the idea of a per-visit co-pay rings a bit too American to most Canadians, but that’s really the least of our worries here.

What it does signify is a shift in practice from the ideals of universal healthcare, so troubling to some that some claim it contravene the Canada Health Act.  Whether that will be challenged in a court of law once the law comes into place is still to be seen.  But what the proposals do reflect is the economic realities of our times – more pensioners supported by a healthcare system buckling under its weight.

The rest of the country is watching this development with keen interest and little smugness, knowing fully well that despite appearance of healthy budgets, we are all going down that road of re-visiting the feasibility of free health care, with Quebec leading the pack.

The second piece of news has to do with the Ontario government’s attempt to cut the price of generic drugs sold in the province, by eliminating a middle-men fee between the generic drug makers and the pharmacies.

While the government claims the fee – where drug makers pay pharmacies to stock their products in the stores, and thus inflate the price of generic drugs that the government must cover under its public drug plan, pharmacists insists that it pays for services like home deliveries and free advice dispensed at the counter.

Ontario’s pharmacists say these professional fees add up to $750 million a year in funding for them and help pay for home deliveries, advice and other services.

The province says the fees simply inflate the price it pays for generic drugs, noting the same drugs cost a lot less in other jurisdictions.

The noose is tightening around businesses that previously relied heavily on government subsidies as part of its business model.  So much that the largest drug chain store in the country, Shopper’s Drug Mart, took a 9% plunge in its stock price when the report came out last week.

The government is most likely counting on the fall in generic drug price (previously allowed to be 50% of brand-name products, now no more than 25%) to lower both its public drug program bill and work-place benefit plans, and make room for all three parties – the government, work-place, and individuals to take on additional contribution costs in order to maintain the “free” healthcare program for the foreseeable future.

In other news, the Dutch are also revisiting their concept of affordable health care, which has grown increasingly expensive in the past half a decade.

From my own experience, the low-cost nature of the Dutch system has a lot to do with its healthcare system focusing more on treatment, and less, if any, on preventative care, and where a cultural aversion to medication (if you are sick, stay home and drink tea) and hospitalization (home birth is the rule rather than the exception, and asking for epidurals during labour means you are a wimp) also keep the cost low.  I will try to write about those another day.

But all in all, we are all moving in the direction of higher health care costs.  Now the race is on to see which country is best able to contain the cost without sacrificing the care.

Image via Wikipedia

The Arctic might be melting and scaring the rest of the world, but the Greenlanders aren’t too worried about it.  They are fully aware of the fact that when ice disintegrates, so goes the Inuit hunting lifestyle.  But that has since then been replaced with the dreams of potential economic windfall from oil.

The Greenlanders are so confident of what the “black gold” can do for them, they have negotiated independence from their colonial overlord – Denmark.  It sounds great in theory, but in reality, a clear break from the mainland means a reduction in subsidy, amounting to $11,000 per person, or 60% of its annual budget.  That will have to get made up, somehow.

So the island, made up of mainly hunters and fishermen, and with little industry to speak of other than bottled water and dwindling shrimp stocks, will have to muddle through the most accursed problem of them all: the resource curse.

[T']here’s the fear that Greenland could become the Nigeria of the Arctic, another victim of the so-called resource curse, in which oil wealth triggers a downward spiral toward dysfunctional dictatorship.

Really?  That’s all you can say about it?

The resource curse is one of those economic conundrums that almost every resource-rich country, even developed ones like Canada, falls victim to.  Resource misallocation, misspending, corruption, undiversified economies, run on its currency and subsequent inflation, unstable growth, rising inequality, and eventually, just plain running out of the stuff!

So far, the only country that’s emerged triumphant from the mixed blessing of oil, is Norway.

And they were fortunate in part because “they are completely incapable of getting carried away by the oil dream.”

So the Greelanders have a lot to learn.  That is, when they find the oil.  And if they do,  I can’t see how this can possibly end well.

Below, an excellent documentary if you haven’t seen it yet, the effect of climate change on Greenland soil.

Early reading list this week.

I’m always interested in how cultures affect the way we organize ourselves politically and economically.  See how Germany, Norway, and Canada are faring this recession. The actions and reactions are results of something more deep-rooted than a wholesale application of capitalism.

Then I stumbled upon a number of older articles on what it meant to be an introvert.  A fellow Twitterer pointed me to more evidence that as a marginalized and misunderstood group, we have done pretty well as far as corporate ladder-climbing and entrepreneurships go.

And there’s Elizabeth Edwards, whom captivated my interest by going on an explicable press rampage.  A good wife, a manipulative and vengeful woman, a good mother and protective hen, or none of the above?

Moving on to the broader question of happiness, the Atlantic’s cover story lends a peek.

As a compliment to this existential and heavy topic, check out what the future has in store for us at WolframAlpha and Japan’s robotic nation.

1. Germans’ sense of order, Norwegians’ contrarian and frugal nature, Canadian’s conservativeness. The Lines a German Won’t Cross, Thriving Norway Provides an Economics Lesson, Worthwhile Canadian Initiative

Germans practice their love of order much the same way its southern neighbours practice spontaneity.  Perhaps to compensate for its wartime chaos, perhaps to merely find another outlet for this distinct cultural characteristic, the Germans have carried out the same stoic application of rules in its current dealings with the financial crisis.  Economic and political decisions arise out of centuries of cultural back-drop, and are not something one easily transposes.

The Norwegians, on the other hand, have channeled their frugality and contrarian mindset to duck investments that many of its European counterparts have plunged themselves into. It helps that they are rich in oil. But not everyone is managing their oil revenue the same way.

It’s hard to believe how much things had changed in just ten years. In the late 90s, the predominant concerns amongst Canadian politicians and media was the issue of “brain drain”.  People were concerned that after receiving heavily subsidized and high quality educations, Canadian professionals – i.e. IT/engineers, doctors, etc, were migrating to the US en-masse.  Now with America tightening up its immigration policies, soaring health care costs and less than stellar economic fundamentals, the tide has turned.

2. Hello, I am an introvert. Caring for Your Introvert, Not all successful CEOs are extroverts

I am an introvert. I function better when I am alone.  I like good conversations and distain small talks.  I need a whole day to recharge after an evening of socializing. I am impatient when my boyfriend thinks out loud his problems.  I also have an overwhelming urge to hide such anti-social tendencies behind guises of friendliness and outgoing chatters.

I had suspected so during university, where I found it beyond awkward to have to go to parties and make myself sociable. Parties felt like beauty pageants, where each contestant performed for the attention and adoration of the crowd. I always wondered how people could keep up those mundane conversations with so much zeal, focus, and clever retorts, when I try to decide between feeling bored or annoyed.

I knew it for sure at my first job upon graduation, where training mandated our abilities to socialize. The only way I could kick up the gibberish and turn on the talking head was by consuming a copious amount of alcohol.  So I went to all the parties, many reluctantly, and put on my best drunk face.  It worked beautifully.  I was designated the party girl and the social animal.  Boy, did I have them fooled.

Clearly, that is hardly a long-term strategy if I did not want to end up at AA.  Eventually, I came to the same conclusion that the author did: introverts like me are not anti-social, we are not abnormal, we just are.

3. Elizabeth Edwards’ media blitz. Elizabeth Edwards’ walk of pain, A complicated question, Should we blame Elizabeth Edwards for husband John’s sins? The ultimate Good Wife

Surviving from cancer, the death of a child, and a cheating husband, Elizabeth Edwards should get a free pass for life.  And had she not gone on a sadomasochistic press tour de force, appearing on Oprah along with other TV interviews, nobody would have bothered.  Some say her sudden eagerness to talk had to do with 1) public atonement on behalf of her husband, which will re-habilitate at least his personal reputation, if not his political one, and 2) to bar “the other women” from ever entering into a relationship with him should she pass away.

But watching the interviews and reading through her responses, you can’t help but get the feeling that this is a woman that has occupied the space of the “good wife” for so long, she has become oblivious to human nature.  This is someone who asked her husband’s faithfulness as the only gift at her wedding 30 years ago (is fidelity not an intrinsic pillar of the marriage contract?), who was bewildered that a temptress like Hunter could deliver the line “you’re so hot”, who chose to believe that the affair was a one-night stand.  But amidst this naivety, this was also someone so ambitious that she supported her husband’s run for office despite her cancer and rumours of the affair.

Here’s something she said that tells me either she buys into the garbage that popular culture feeds the female population, or that she is clever enough to appeal to deep fears of every middle-aged housewife.  In her interview with Oprah, Edwards voiced how hard she worked to make her marriage and family work, and how Hunter could not just barge in and take her place.  She talked as if a family can be defended with such mental fortitude against husband stealer the likes of Hunter.  Maybe the blame does not lie solely with the girlfriend, but with the husband.  Girlfriend, it’s time to stop humming that Beyonce song in your head.

4. Lives and happiness chronicled. What Makes Us Happy?, Perfectly Happy

Without going into existential musings of happiness and all the ensuing discussions, the study cited by the Atlantic article reminds me of the 7Up series produced by the Paul Almond. Conducted in seven year intervals, the audience follows a group of British school children of various social backgrounds from the 60s, and track their lives throughout the years. The initial aim of the study was to examine whether class have a deterministic impact on one’s trajectory in life.

Not surprisingly, the study focuses more on the material aspects of those lives versus the emotional.  But the impact of a study of such magnitude and longitude is impossible to understate.  I have seen 7 through 49Up. And there is something very strange with watching this social experiment unfold at an accelerated pace on screen, while we sit on the other side, protected by time.  The journeys of those children is but a real reflection of what life holds for most of us: a series of poignant struggles that are, for the lack of a better superlative, heart-breaking.

The Harvard study is hard to read. Because lives that appear happy and fulfilled on the outside maybe still be full of regrets. Lives that were messy and met with tragic ends could in fact be heroic and daring upon closer examination. So in short, what makes a happy life?  No substance abuse, good mental health and connecting with people seem to be the only common factors.  Everything else is still unknown.

5. I have seen the future, and it is humanoid. See a WolframAlpha demonstration, and check out Japan’s robots.

WolframAlpha should come online later today.  And it will change the way we process information by allowing us to search by asking questions versus inputting keywords. This will humanize the web, the same way that the Japanese robotic industry is trying to humanize new generations of robots.  Is this robotic future for us?  I don’t know.

The Japanese population has been dwindling for 30 years, so there is already a smaller pool of people able to have children. Short of a demographic miracle, robots will be the future for Japan.  Interestingly, this video addresses a lot of my previous commentaries on Japanese society, where a fear of immigration has driven the country onto a path that will depend on the integration of robots into human society in order to survive.  And yes, this feels as futuristic to type as it probably looks on screen.

In the video, note how the Japanese’ preference to deal with machines versus humans are in many ways fueling “intimacy” issues in Japanese society, highlighted by sexless marriages. Lack of human contacts in turn exacerbate isolation, and further amplify the obsession with all things robotic.  Also note the attitude of working Japanese women that refuse to marry and have children.  Upon gaining economic freedom, they are unwilling to subjugate themselves to Japanese marriages/servitude.  With Japanese men unwilling, and perhaps unable to provide these working females with needed emotional support, many pay male hosts for stress-relieving entertainment.

Eye opening and mind boggling, highly recommended.

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When I first moved to Calgary to work in the oil and gas industry in early 2006, it was right around the top of the property boom, and affordable housing was next to impossible to find.  Not wanting to shell out half my salary for an apartment, and spending months to fill it up with furniture, I decided to go the room rental route.

Little did we know at the time, but towards the end of 2006, the market was slowly but surely moving from sellers’ to one that favoured buyers.  Ones in the know, i.e. people with family members that dabbled in real estate, already sold in late 2005 or early 2006. But the media and the rest of us general public have always been slow to catch on.  And you wouldn’t know, from the construction buzz around the city, to the countless “For Help” signs hanging haplessly outside shop windows, to stories of McDonald’s and Starbucks paying upward of $14 an hour plus benefits to attract and retain employees.

My second landlord, a sweet spinster in her 60s, believed in the power of real estate as much as she believed in the miracle that is modern medicine.  She credited her various real estate investments for her comfortable lifestyle, despite not having worked out of her home for more than decade.  Her piece of advice to any young-uns that cross her path, is the adage that we should all invest in real estate sooner rather than later.  I can’t blame her or others her generation  for their spectacular confidence in the strength of the housing market.  Their experience of ever-rising property prices facilitated that expectation.  It certainly looked good at the time, with housing prices that doubled within a few years.  Houses that were hardly 1,000 square feet would go for 400,000 to 500,000 dollars in certain parts of the city.  The gains were ludicrous.  And the whole town was drunk on the sudden discovery that, thanks to oil sands in their back yards, a lot of them were paper millionaires!

In early 2007, cracks were already apparent.  One of my bosses bought a yet-to-be-built house on a new lot on a fixed price, while trying to sell her existing dwelling.  Within the span of a couple of months between when her house was valued, and when it went on the market, the price had already dropped by 10,000.  That’s the problem with houses.  You have to live in one. So unless one can capitalize on the gains immediately, and move elsewhere, one only ends up upgrading to an even more over-valued house.  Luckily, the housing boom in Canada, even western Canada, still paled in comparison to what went on in California, the UK, and Spain.  Even the sharpest decline was contained within teen digits.  But for the people that bought into the perpetual rise of property value, is the current market decline a temporary setback, or something that will linger indefinitely?

Jon Carney at Clusterstock seems to favour the latter theory.  From a demographic perspective, this certainly makes sense.

1. Baby-boomers in the US and Europe more or less carried the property markets for the last few decades.  Their continuous demand for housing, whether they be condos, starter-homes, or suburban mansions, drove the market.  As this population ages and trade down, we might se an increase in demand of condos, retirement homes or assisted living complexes, but a drop in market demands for larger homes.

2. Those of us who belong to Gen X or Gen Ys are just not large enough of cohorts to fill the shoes.  There’s the issue of massive student debts, due to the boom and the increasing necessity of acquiring a college education.  Then there’s the shortage of Gen X to move into excess dwellings available on the market.  According to Carney, “only 44 million people were born into Generation X. There are currently 19 million empty homes in the US. That means that if Gen X pairs up through marriages, cohabitation or roommating, they can live in the empty homes without ever buying a new one.”

3. There is compelling evidence that once a bubble bursts, it hardly ever reflates.  The Tulip bubble never came back again, nor did the tech bubble.  So unless the property market can demonstrates and rationalizes rising valuation, it will not climb back to the mid-2000 level.  The public and the media will probably move on to some other new asset class.

4. Inflation or deflation, the property market doesn’t stand a chance.  Should inflation take place from the massive printing job various governments around the world participate in, it can potentially eat up gains made in real estate.  Should deflation becomes the reality, then according to Charles Hugh Smith, “debt grows ever more burdensome as money becomes more valuable and wages and income drop. As a result, assets dependent on debt ( that is, real estate) drop in value. In deflation, real estate become a “capital trap” which loses value as cash gains in value. As incomes plummet, so do rents, i.e. the income stream which real estate earns, further impairing its value.”

5. Low interest lending is gone.  Interest rates will climb higher again, particularly in the US.  The artificial low interest rates can only last as long as the rest of the world had the cash and desire to lend it.  And the spectacular failure that came out of the Democrats’ goodwill to support low-income home ownership will have people questioning the wisdom of policies that justified low interest rates, perhaps even interest deductibility on mortgages that fanned speculation and unaffordable mortgages.  As a side note, Canada does not allow interest deduction, yet home ownership is higher than in the US.  Just saying.

picture source: semideus

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A while ago, I looked at some of the worst-hit countries from the global financial storm, and concluded that on a scale of bad to deplorable, the US hardly the worst off. No crystal ball can readily foretell which regions will emerge from the crisis unscathed, but I am bullish on Canada in the medium to long term. Here’s why.

Sounds banks, no bailouts

Some say it was the far-sightedness, wisdom and conservatism that prevented the Canadian banks from participating in the madness that was the sub-prime securitization in the US. Many European banks were not so lucky. Financial institutions from Ireland, England, Iceland, to Belgium and Germany bit off more than they could chew from the “financial innovation” engineered by geeky American capitalists.

In actual fact, it was more likely that the one should credit the particularly Canadian combination of inertia, combined with a dose of cynicism and natural repulsion reserved for those overwhelmingly dominant American business machines, for saving taxpayers from burdens now haunting citizens the world over.

In 2009, the World Economic Forum announced that Canada has the soundest banking system in the world. No small feat, given both the US and many of Europe’s finest had put out their hands to respective governments for help. More embarrassingly, IMF bail-outs and their subsequent belt-tightening policies – previously a last-resort set up to help the undisciplined and “underdeveloped” countries of the world, are forced-fed to some that basked in prosperity only a year ago.

Still sustainable health care, and education system

Rosy picture aside, Canada is hardly immune from the global downturn. In 2008, even perennial winners and long-time economic powerhouses – such as Ontario and Alberta, reported deficits. In a bittersweet historical moment, Ontario got its first ever federal equalization payment this month. Bitter, because the check is usually reserved for Canada’s poorest (have-not) provinces. Sweet, because, well, Ontario cannot complain from never getting anything out of the federal government again.

But that one dark blotch aside, the fabrics that make up the social welfare system of Canada faces no immediate threat. The health care system is still universal and free, save for small and income-tested fees in a few provinces, topping out at a few hundred dollars a year. This is very small compared to what most of the world pays, even the European ones.

As an aside, in the Netherlands, where I am residing now, health insurance is universal and government mandated, but NOT picked up by one’s employer. Nor do employers provide generous dental and other health-related benefits enjoyed by even the most entry-level positions in Canada. An average person pays over 1000 euros a year (yes, still laughable compared to what Americans shell out) for a basic package. More often than not, visits to specialists incur fees that require co-payments. Perversely, I think this kind of system encourages entrepreneurship, since the upside of work is much less attractive without the peripheral benefits.

But back to Canada. Last time I checked, good education is still available at relatively affordable rates compared to most private institutions across the border. Subsidized by taxpayers, Canada’s higher education has yet to grow into the madness that is American tuition fees. Unless one is wealthy or smart, then short of robbing a bank, you are sure to graduate with a mountain of debts. In Canada, by exacting a moderate financial commitment from the students (the average hovers around $5,000 CND a year, excluding books, equipment and living expenses), the government and the public demand reasonable academic and financial discipline. This is a justified and balanced approach. Otherwise, you end up with the western European scenario, where graduating from a bachelor’s degree within its mandated four years is more often an exception rather than the rule, where students (I use that term loosely) still wander around campus in their late 20s, oblivious to the ridiculousness of dragging their studies on for 6 to 10 years.

Got what you need – commodities, agriculture

Like many export-oriented economies, prosperity in Canada depends on the goodwill and continued demand of its products from abroad. For the last couple of decades, the economy has grown increasingly two-pronged.

A common Canadian complaint is the mixed blessing of living next to the world’s most powerful nation, where its mood and appetite need to be carefully monitored and catered to. The Canadian manufacturing industries (particularly those in Ontario and Quebec), its film industry (much of Hollywood production is made in Canada, creating thousands of jobs and millions of dollars for the BC and Ontario economies), and the tourism industry, all depend a good chunk of their yearly revenue on the backs of Americans. In some instances, Canadian businesses closely parallel their American counterpart, none more obvious than the auto industry. America has been, and perhaps will stay the number one destination for Canada’s exports for the near future.

On the other hand, what Canada has stored underground, and what Canada is able to grow, has piqued interest the world over. The three prairie provinces that stretch through much of Canada: Manitoba, Saskatchewan, and Alberta, are fertile farmlands. When the prices of agriculture recover, and they inevitably will, those traditionally sleepy provinces may emerge as the real winners in the coming decades. In other parts of the country, forestry products and base metals abound. As China and India continue their industrialization process, aluminum, copper, gold, iron ore, nickel, uranium will fetch a pretty price yet.

Last but not least, there are the “black gold” of Albertan oil sands. Granted, large-scale operations have all but halted due to the precipitous drop in crude price. But most economists concur that the current price level is 1) temporary, and 2) harmful for long-term oil affordability. In fact, the retrenchment of large-scale drilling and exploration projects lead to an untimely delay to secure future resources. When demand roars back, we’ll get smacked around at the gas pump even worse than the last time.

All this reminds me of two quick stories from my time in Calgary. The first one is the widespread belief that “this time around is different”. Not really, it’s never that different. Calgary went through an oil boom in the 70s, followed by two decades of sluggish growth. When oil price resumed its rise in mid-2000s, people cited the insatiable demands of China’s factories and American consumers as proof that oil had nowhere to go but up and up. This was also the rough line of reasoning that supported the astronomical rise of property prices and the subsequent building boom. At one point in 2007, I could see over half a dozen building cranes from my fifth floor balcony in downtown Calgary. The three corners adjacent to my building were prepared for the erection of luxury condos or office building. The city was untouchable. Things have changed since then. Now all’s quiet on the construction and oil rig front: out of province workers left en-mass beginning of the year. Some never came back after Christmas.

The second one makes me more optimistic on the long-term prospects of the oil sands. Also around 2007, a large Chinese delegation visited the city in an attempt to either buy up a large and well-known oil company or to negotiate some kind of long-term delivery deal. Word on the street: as soon as the Chinese left, the Homeland Security Department landed by helicopter. Escorted by secret service, the top dogs marched straight up the executive suite of the unnamed company, and wagged their fingers. The deal never went through.

Obama can say what he likes about green technology and frowns upon the environmental degradation caused by working with the oil sands. But when push comes to shove, he’ll buy from friends first.  In the least, he won’t let it go to the competition.

Geographic and demographic sustainability

Did you know that in certain parts of Asia (Japan, Hong Kong), the subway employs “pushers”? Those guys make sure as many people as possible get squeezed into subway cars during rush hours. Not the prettiest picture, is it?

Space affects us in more ways than the obvious. Those living in crowded urban spaces have to put up with a level of stress and claustrophobia (or intimacy, take your pick) not known to the suburban dwellers. Unless they commute, that is. In places that embrace a more collectivist culture and can live with some loss of personal space, geographic limitations may in fact facilitate the cultural norm.  Italy, anyone?

But for most parts of the world, individualism is valued at a high cost. For example, property prices and living expenses are consistently the highest in places where land is limited. Japan and parts of Western Europe are in perilous positions. Their limited geography has adverse impacts on everything from their trade dependencies to their immigration policies.

In those parts of the world, demography is not on their side. Their rapidly aging populations run concurrent to declining birth rates, making the sustainability of current taxation and social welfare systems highly questionable. Yet geography (partly) limits immigration. In already crowded places like Japan and the Netherlands, where do you put these new people?

Then I remember that there’s always Canada. With plenty of land, self-sufficient resources, a working immigration policy that ensures the sustainability of social programs and cushions against the damaging effect of an aging population, the future is pretty bright.

picture source: *horstdesign