The US election 2012: Implications for Canada

7/29/2019 The US election 2012: Implications for Canada

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Te US election 2012:

Implicationsfor CanadaCOLLECED ESSAYS

Professor Alexander Moens

and Jason Clemens, editors


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Contents

Summary: The US Election 2012: Implications or Canada / 3

Alexander Moens and Jason Clemens, eds

1 Killing the Economic Engine: Policy Uncertainty and Economic

Growth in the US and Canada / 13

Nicolas Bloom

2 Americas Spending Crisis / 17

Chris Edwards and Tad DeHaven

3 How Changes in US Tax Policy Will Aect Canada / 20

David R. Henderson

4 US Monetary Policy / 23

Jerry Jordan

5 Energy Policy in Obamas Second Term / 26

Kenneth P. Green

6 US Energy and Environment Policymaking in

Obamas Second Term / 30

Chris Horner

7 Washingtons Inadvertent Message to Canada: Diversiy / 34

Alexander Moens

8 One Part Proximity, Nine Parts Good Will: The Canada-US

Trade and Border Challenge / 37

Laura Dawson

9 The Eect o US Financial Market Regulation on Canada / 41

Moin Yahya

10 Obamacare and Canadian Health Care / 44

Steven Globerman

Publishing inormation / 47


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Summary:

The US Election 2012: Implications or Canada

Proessor Alexander Moens and Jason Clemens, Editors

Despie a weak economy, marke volaili y, numerous inernaional challenges,and several brewing scandals, US voers reurned a saus quo governmen o

Washingon, DC in early November 2012. Presiden Barack Obama becomesonly he second Democra since Franklin D. oosevel o win re-elecion asPresiden o he Unied Saes. he Congress remains divided wih he Democrasconrolling he Senae and he epublicans (GOP) in charge o he House oepresenaives.

Te Peace Arch ouside o Vancouver, Briish Columbia, which borders he USnear Blaine, Washingon, has an inscripion on i ha sums up he enduring naure ohe CanadaUS relaionship: Le Tese Gaes Never Be Closed. Tere is simply nodispuing he inegraed, inerdependen relaionship beween our wo counries. Te

ac ha almos hree ou o our dollars o expors rom Canada goes o he UniedSaes is bu one saisic highlighing he imporance o each counry o he oher.

So, while Canadians are no allowed o voe in US elecions, our orunesand prosperiy are inimaely aeced by he elecoral decisions o our Americanneighbours. he Fraser Insiue asked en noed Canadian and American schol-ars o wrie abou he implicaions o he US elecion on Canada in a numbero key policy areas. Each essayis was asked o answer, o varying degrees, hreequesions relaing o he resuls o he US elecion: (1) W ha are your expeca-ions or policy in he near uure (wo o our years)? (2) Wha are he problemsor opporuniies wih such policies? (3) And w ha are he implicaions o such

policies or Canada?

Policy uncertainty

A consisen heme ran hrough almos every essay: he coninuing high level o eco-nomic uncerainy is hampering he recovery in he US and he naions uure prospecs.Pu dierenly, almos every essay conains some discussion abou he uncerainies haUS governmen policies are creaing and how ha uncerainy is adversely aecing he


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6 The US Election 2012: Implications for Canada

perormance o he US economy by making i hardero inves, build a business, underake enrepreneurialendeavours, and generally make business decisions.

Proessor Nicholas Bloom o Sanord Universiy,

a leading scholar in he area o how policy-induceduncerainy aecs he economy, wroe on his veryopic. he measuremen o policy uncerainy byProessor Bloom and his colleagues and heir insighsino he direc eecs o uncerainy on he economy have garnered inernaionalexposure.

Proessor Blooms work has shown wo hings. One, heighened policy-induceduncerainy since he recession (2008) has had a direc adverse eec on US economicperormance. And wo, o criical imporance or Canada, Proessor Bloom concludesha much o Canadas curren economic policy uncerainy is due o conagion romhe US. Bloom also concludes (as expeced, given he inerdependence o he woeconomies) ha uncerainy abou US policies has a large, maerial economic impacon Canada.

Unorunaely or Canadians, Proessor Bloomswork indicaes coninued high levels o policy uncer-ainy in he Unied Saes or he nex several years.Negoiaions over he deb ceiling, uncerainy overmedical reorms, changes o Medicaid and Medicare,and ongoing poliical inransigence have all con-ribued o Proessor Blooms conclusion ha poli-

cy-based uncerainy will linger. Such uncerainy will coninue o impede economic

recovery in he US, which, as Proessor Bloom explains in his essay, will also consraineconomic prosperiy in Canada.

Fiscal and monetary policy

A nearly unprecedened bi-parisan level o scal and moneary simulus has beeninjeced ino he US economy since he Grea ecession o 2008-09. Tree essays inhis collecion relae o scal and moneary policy in he Unied Saes.

Te rs o wo essays on he sae o scal policy in he US is by Chris Edwards,Direcor o ax Policy Sudies, and ad DeHaven, Budge Analys, boh o he Cao

Insiue in Washingon, DC. Mr. Edwards was born and raised in Otawa and has col-laboraed wih he Fraser Insiue on a number oprojecs over he years. Teir essay ocuses on hesae o decis and deb in he Unied Saes.

As o he likelihood ha he Unied Saes willachieve a balanced budge in he shor erm, and sa-

bilize is deb held by he public over he longer erm,heir prognosis is nohing shor o grim. Edwards and

A continuing high level o economic

uncertainty is hampering the

recovery in the US and the nations

uture prospects.

While Canadians are not allowed to

vote in US elections, our ortunes

and prosperity are intimately

aected by the electoral decisions oour American neighbours.

Much o Canadas current economic

policy uncertainty is due to

contagion rom the US.


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DeHaven quoe esimaes rom he CongressionalBudge Oce based on he curren policy sruc-ure indicaing ha public spending as a share ohe economy will soar o roughly 40 percen o he

economy (rom 23 percen oday) over he nexhree decades, which will cause US ederal deb heldby he public o skyrocke rom is already worryinglevel o roughly 70 percen o GDP o 250 percen.

Edwards and DeHaven argue ha he WhieHouse is providing no real leadership on spending reducions, spending reorm, andparicularly ackling he problems in Americas hree key enilemen programs. As heauhors explain, he drivers o increased uure spending (and hus increases in hedeb held by he public) are growh in Medicare (healh care or he elderly), Medicaid(healh care or he poor), and Social Securiy, which he Obama Adminisraion hasshown no ineres in reorming in any real sense. Te auhors also poin ou ha hecurren spending paterns are bi-parisan in naure: epublicans have shied away romrying o acually end programs or downsize ederalagencies.

Given he US ederal governmens conin-uing procliviy o delay and deer acing on isdecis and deb, Edwards and DeHaven righlyremind readers ha a day o reckoning is coming, in

which he required reorms will be much deeper and more radical han wha is currenlyneeded. Alhough Edwards and DeHaven don say so specically, he US delay givesCanada an opporuniy o close he remaining gaps in ax compeiiveness. Tis oppor-

uniy emerges rom he ac ha he US will likely no be in a posiion o implemenserious ax relie wihin a balanced budge environmen or he oreseeable uure. TeCanadian ederal governmen, on he oher hand, could be in such a posiion wihin aew years.

Manioba-born and raised economis David Henderson, who eaches a heNaval Posgraduae School in Monerey Caliornia and who was a senior economis

wih Presiden eagans Council o Economic Advisers, oers insighs ino ax com-peiiveness beween Canada and he US in he second essay ocused on scal pol-icy. Proessor Hendersons general observaion is ha Canadians wil l bear a slighlyheavier personal ax burden han heir American counerpars or he nex ew years

while Canadian companies will be axed much ligher han American rms. Beneahhis general conclusion, however, are a number o imporan insighs regarding heax opporuniy or Canada.

Proessor Henderson oulines he compe-iive disadvanage Canadian income earners acerelaive o heir American counerpars wih respeco income axes. Simply pu, Canadians ace higherincome ax raes ha become eecive a lower

The White House is providing no real

leadership on spending reductions,

spending reorm, and particularlyentitlements.

Republicans have shied away rom

trying to end programs or downsize

ederal agencies.

Therein lies the opportunity or

Canada: balance budgets, then

reduce personal income taxes.


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income levels han do Americans. Herein lies he opporuniy or Canada over henex decade or so: balance budges, hen reduce personal income axes.

Proessor Henderson also explains how oher individual axes, such as payroll,dividends, and capial gains axes, are all lower in Canada han in he Unied Saes,

which o some exen oses he disadvanages in personal income axes. Income axesare wihou a doub he larges source o revenues or boh governmens and he singlelarges ax or he op hal o income earners. I is, hereore, criical ha on income axesCanada gain some level o comparabiliy, i no a compeiive advanage over he US.

Tankully his has already been achieved on he business ax side, as Hendersonexplains. Indeed, Henderson ends his essay wih a wonderul line capuring his argu-men: Canadian governmens are saying o Americans, in eec, Send me your huddledcorporaions yearning o keep more o heir earnings; I li my lamp beside Vancouver,Calgary, and orono.

Te oher source o nearly unprecedened simulus in he US has been monearypolicy. Former Presiden o he Cleveland Federal eserve Bank and Fraser InsiueSenior Fellow Jerry Jordan penned an essay on he prospecs and implicaions o USmoneary policy. Among a number o worrying insighs in his essay is he explodingnaure o he Federal eserves balance shee, he subsequenly ineecive naure opreviously used moneary devices such as he FederalFunds rae o infuence moneary policy, and mosominously, he prospec o higher infaion raes inhe uure.

Jordan idenies a key issue in US monearypolicy: he Federal eserves curren willingness onance large, ongoing ederal governmen scal de-

cis. In Jordans words, moneary policy is a scal insrumena way o nancing gov-ernmen. Tus, he key o beter moneary policy, according o Jordan, is consraininggovernmen spending in order o avoid having he cenral bank ac as a nancier orhe governmen. Simply pu, Jerry Jordan doesn see he US cenral bank as having hepoliical will, or he independence, o reduce or even consrain is suppor or scaldecis.

Te implicaions or Canada and oher small rading counries are airly clear. Ashe US, Europe, and Japan become more oleran o infaion, heir currencies will likelydepreciae while he currencies o smaller, open economies like Canada will appreciae.Such currency changes mean ha exporers and exporing counries like Canada will

ace increasing challenges. Jordan explains ha such currency challenges oen lead oworsening policy responses, such as rade proecionism.

Energy policy

Given he energy secors imporance o he Canadian economy and he inegraednaure o energy markes in Norh America, his collecion o essays would have been

For better monetary policy, constrain

government spending in order to

avoid having the central bank act as

a nancier or the government.


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delinquen had i no addressed energy policy in he US. wo essays were commis-sioned on energy-relaed issues.

Former esiden Scholar o he presigious American Enerprise Insiue andrecenly appoined Senior Direcor o he Fraser Insiues Cenre or Energy and

Naural esource Sudies Kenneh Green provided he rs.Green irs explains he dichoomy beween he rheoric o he ObamaAdminisraion regarding ossil uels and he realiyo oil and gas producion and consumpion. heessay describes he Adminisraions disinc anipa-hy owards ossil uels ha simply doesn mach herealiy in which oil and naural gas producion areexpanding markedly. Imporanly, Green explainshow much, i no mos o he growh, has been on privaely-owned and sae-conrolledland raher han on ederally-conrolled land, where oil producion has grown muchslower. Te overarching realiy, however, is ha boh oil and, o a grea exen, nauralgas producion and consumpion have grown and will likely coninue o grow underhe new governmen.

Tis leads Green o wha he considers he mos signican impac on Canada romhe pracical realiy o US policies, which is ha he US will soon need o buy less oil andgas rom Canada and will increasingly become an expor compeior. Te implicaionor Canada is clear: his counry needs o develop is capaciy o marke and ship energyproducs o oher markes. For example, nearly all growh in Canadian expors o heUS over he las decade has been in energy producs.

Tis risk o Canadian energy expors is somewha empered by he argumenconained in he second essay provided by Compeiive Enerprise Insiue energy

scholar Chrisopher Horner. Horner argues ha he Obama Adminisraion can, andlikely will, inroduce a hos o environmenal and saey regulaions aimed principallya he energy secor, and more specically he oil and gas secor, which will adversely

aec producion. For example, Horner suggess hahe ederal governmen will likely cenralize oversigho hydraulic racking, which has been key o he boomin naural gas producion. Such a change would cer-ainly consrain he uure developmen o his sourceo energy and hus emper he abiliy o he US oproduce and expor naural gas.

Anoher, perhaps more ominous aspec oHorners analysis wih respec o he eecs on Canada

is he risk o harmonizing bad regulaions. As Horner poins ou, Canada has a hisoryo harmonizing our rules wih US regulaions, and NAFA guidelines encourage suchharmonizaion. Horner liss a number o regulaions ha are eiher being draed, or areexpeced o be released over he nex wo years, which will likely adversely aec heenergy secor in he US. Te risk or Canada is ha we harmonize such rules domesi-cally and incur he same or similar adverse eecs.

Canada needs to develop its capacity

to market and ship energy products

to other markets.

The risk or Canada is that we

harmonize rules that will likely

adversely aect the US energy

sector and incur the same or similar

adverse eects.


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CanadaUS relations

wo essays in he series ocus on he sae and uure o CanadaUS relaions. AlexanderMoens, a proessor o poliical science a Simon Fraser Universiy and he co-edior

o his series, and Laura Dawson, he presiden oDawson Sraegic and a ormer senior adviser o heUS Embassy in Oawa on economic aairs, bohprovided essays on he prospecs or improvemensin CanadaUS relaions.

Moens and Dawson agree ha in he uure,Canada will ace enormous diplomaic and bureau-

craic challenges due o he low prioriy accorded Canadian issues, including rade andsecuriy. Boh auhors conclude ha Canada and is areas o ineres are low prioriiesor he Obama Adminisraion.

Dawson acknowledges ha here have been gains made under boh he Beyondhe Border Declaraion (o speed up he movemen o cargo and people across heborder) and he egulaory Cooperaion Council (o align bilaeral produc sandards,esing, and cericaion) alhough boh iniiaives are behind schedule wih respeco implemening agreed-upon deliverables. While he poenial gains are enormous,Dawson explains he complexiy behind any achieved improvemens and he heigh-ened need or greaer poliical and bureaucraic atenion.

Proessor Moens analysis o bilaeral relaions wih he US concenraes on heneed or Canada o pursue genuine diversicaion sraegies, paricularly wih respeco rade. He suggess ha Canada would bene rom such diversicaion boh wihrespec o increased marke access or more counries and rom greaer leverage wih

he Unied Saes.

Finance services regulation

ounding ou our series are wo essays ocused on specic policy areas, beginning wihnancial services regulaion. Universiy o Albera proessor and Fraser Insiue seniorellow Moin Yahya oers his houghs on he implicaions o US nancial regulaionsor Canadians.

Proessor Yahya concludes ha he re-elecion o Presiden Obama will lead o heull implemenaion o wha is popularly reerred o as he Dodd-Frank Ac, which imposes

new regulaions on he nancial services secor in he US. According o Proessor Yahya,abou hal o he expeced regulaions emanaing romDodd-Frank have been writen wih he remainderexpeced over he nex couple o years.

Te impac o Dodd-Frank and is accompany-ing regulaions on he US nancial sysem is highlyuncerain, and in ac, uncerainy seems o be heonly cerain impac. Te impac o Dodd-Frank on

Canada will ace enormous

diplomatic and bureaucratic

challenges due to the low priority

accorded Canadian issues.

The impact o Dodd-Frank and its

accompanying regulations on the US

nancial system is highly uncertain...

its impact on Canadas nancial

system is even more unclear.


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Canadas nancial sysem is even more unclear. Te reason is wo-old. Firs, somespecic provisions o Dodd-Frank deal wih oreign banks, bu many o he rules have

ye o be developed by he Federal eserve Board. Second, here are oher rules hamay apply inadverenly o Canadian companies ha happen o be doing business in he

Unied Saes, such as brokerage rms ha rade American socks or cliens in eiherhe Unied Saes or Canada.Clearly, here will be eecs on he Canadian banking and nancial services secors

rom he regulaions being imposed by US legislaors; he adverse eecs rom heseregulaions will no be consrained o he shores o he Unied Saes.

Health care

Te second issue-specic essay perains o Presiden Obamas signaure rs erm leg-islaion: Te Aordable Care Ac (ACA), or wha is more commonly reerred o asObamacare. Wesern Washingon Universiy economics proessor and Fraser InsiueSenior Fellow Seven Globerman has conribued he nal essay on US healh carereorm.

Proessor Globermans essay provides a broadoverview o he US healh care sysem, he ways in

which he ACA will change American healh care, andis implicaions or Canada. One o Globermans keyconcerns is ha he ACA will likely reduce raes ohealh care-relaed echnological change in he US

which, in urn, will reduce he availabiliy o such newechnology o Canada.

Te Unied Saes is he leading source o new healh care producs and services,including medical equipmen, pharmaceuicals, and surgical and clinical echniques.Oher counries, including Canada, bene by imporing producs developed in heUnied Saes, oen a marginal cos. Canadian healh care providers also bene bywaiing unil new procedures and echniques are proven eecive in he Unied Saesbeore adoping hem in Canada. Te abiliy o he Canadian secor o acquire echnol-ogy and knowledge rom he Unied Saes reduces he need or Canadian invesmenin expensive research and developmen, clinical esing and he like, hereby makingsae-o-he-ar healh care services less expensive or Canadians. I he ACA reducesinnovaion in he Unied Saes, oher counries, including Canada, will presumably

need o spend more on healh care innovaion o improve he qualiy o heir healh care.Te anicipaion o shorages and wai imes in he US healh care sysem due

o he ACAs expeced reorms also have implicaions or Canada. Provincial govern-mens can poenially save money by using spare capaciy in he US healh care sysemas a buer agains excessive waiing imes in Canada. aher han depending uponhe Unied Saes o absorb Canadian paiens o deal wih long wai imes or someprocedures, provincial governmens will presumably need o add domesic capaciy orincrease waiing imes or Canadians.

The ACA will likely reduce rates o

health care-related technological

change in the US which, in turn, will

reduce the availability o such new

technology to Canada.


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Conclusion

While polls in Canada consisenly show overwhelming suppor or Presiden Obama,he realiy o his re-elecion, combined wih a divided Congress, presens a number o

real, immediae risks and opporuniies or Canada. Some o he risks and problemsdiscussed in hese essays can be managed hrough sound domesic policies. For example,he Canadian rend o lower corporae ax raes is making he Canadian economy amore compeiive place o do business.

Oher risks canno be managed o he same exen. In he shor erm, Canadiansare more or less exposed o he degree o which our wo economies remain inerde-penden. For example, in he oil and gas secor, hecombinaion o srong growh in US producioncoupled wih US ederal regulaions resricingaccess or Canadian producs o he US markeleaves Canadian policy-makers no alernaive buo pursue diversicaion. Tese risks require poli-ical leadership in Canada o miigae hem o hegreaes exen possible.

Mos o our essayiss agree ha he combinaion o policy uncerainy and domes-ic poliical gridlock in he Unied Saes is harming American economic growh andprosperiy. Te resul o uncerainy and poliical inransigence in he US will coninueo adversely aec economic prospecs in rading parners such as Canada. In addiion,a number o essayiss recognized he perilous course American policy coninues oollow. Teyve indicaed ha a some poinperhaps a poin already upon usohercounries, including Canada, will atain susainable, policy-based advanages over he

Unied Saes. For Canadian policy-makers, he challenge is o miigae he risks romhe US urmoil while maximizing new opporuniies o gain economic advanages.

For Canadian policy-makers,

the challenge is to mitigate the

risks rom the US turmoil while

maximizing new opportunities togain economic advantages.


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1 Killing the Economic Engine:Policy Uncertainty and Economic Growth inthe US and Canada

Nicholas Bloom, Proessor o Economics, StanordUniversity

Policy confic and scal crisis in he Unied Saes and Europe have spurred concernsabou economic policy uncerainy and is economic eecs. Many policymakers, busi-nesspeople and he media sugges ha he poliical crisis in Washingon is leading rmsand consumers o pospone hiring and spending decisions, hereby salling he recoveryrom he 2007-2009 recession. Tis essay seeks o invesigae his asserion by answer-ing hree quesions. Firs, is economic policy uncerainy high in he Unied Saes andCanada? Second, i so, is his damaging he economy? Finally, wha are he prospecsor uure policy sabiliy and economic growh?1

Measuring economic policy uncerainy is no easyuncerainy is a subjecive concep.Bu we can generae a proxy or policy uncerainy, using hree groups o observable measuresand combining hem ino one measure o economic policy uncerainy. Policy uncerainyin he US varies over ime, rising aer major wars (such as he rs and second Gul Wars),elecions, and erroris atacks. However, and criically imporan or he purposes o his essay,our analysis shows ha policy uncerainy surged upwards in 2008 and has remained high.

So, in shor, policy uncerainy appears o have remained subbornly high since 2008.Beore analyzing he poenial impac o policy uncerainy i is worh briefy summarizinghe hree sub-componens included in our measure. Te rs quanies newspaper cov-erage o policy-relaed economic uncerainy. I uses compuer searches o 10 major US

newspapers, including heNew York imes and Wall Sree Journal.Te second componen refecs he number and size o ederal ax code provisions

se o expire in uure years. I uses he Congressional Budge Oces lis o he dollarvalue o expiring ax code provisions, and a 50% annual discoun rae (hereby ocusingon near-erm expiraions) o generae a ax expiraion index.

1 In addressing these questions I will draw heavily on the academic paper by Baker, Bloom, and Davis (2013) aswell as the data provided online atwww.policyuncertainty.com.


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Te hird componen capures disagreemen amongeconomic orecasers in he Philadelphia Federal eservesSurvey o Proessional Forecasers. Tis componen combineshe inerquarile range o 1-year-ahead quarerly orecass o

ederal, sae, and local governmen purchases (normalized bya backward looking moving average o GDP) and he iner-quarile range o Consumer Price Index orecass.

o creae our overall measure o policy uncerainywe place a weigh on he news index, and a 1/6 weighon each o he ax-expiraion, governmen purchasesdisagreemen, and CPI disagreemen indices. Nex, eachmeasure is normalized o have a sandard deviaion o 1.Te index is hen nally normalized o have a value o 100prior o 2011.

Using his daa we can also break down he keypolicy erms leading o changes in uncerainy over ime.By doing so, we have deermined ha ax, governmenspending, and healh care policy uncerainy are he keyacors driving he increases in uncerainy in he USsince 2008.

Inriguingly, moneary policy uncerainy does noappear o have risen paricularly dramaically since 2008. Poenially his is becauselow and sable infaion and ineres raes mean he mainsream US new media doesno perceive any increase in moneary policy uncerainy.

Canadas index o economic policy uncerainy shows a similar ime prole o he US.

My view is ha much o Canadas curren economic policy uncerainy is due o conagionrom he US. Canada has had a relaively sable moneary and scal policy over he recencrisis and recovery, and economically has no suered as much as he US. Neverheless,policy uncerainy in he US and is accordan adverse eecs on he US economy hasa large economic impac on Canada due o he inegraed naure o our wo economies.

Tere are heoreically many reasons why uncerainy can damage growh. One o heearlies sudies on his issue was by he curren Chairman o he Federal eserve, Ben Bernanke,

who poined ou ha increases in uncerainy lead rms o deer invesmen, creaing shor,sharp recessions. Bu how big is his negaive impac in pracice?

o atemp o esimae he impac o policy uncerainy my colleagues and I (Baker,

Bloom, and Davis, 2013) use a saisical analysis based on vecor auo regressions esima-ions or GDP growh and employmen on our index or economic policy uncerainy, plusoher key economic acors like ineres raes, infaion,and sock-marke levels. Our analysis concludes haincreases in policy uncerainy orecas uure drops ineconomic growh and employmen. Tese magniudesare also largean increase in policy uncerainy o hesize seen on average beween 2006 and 2011 will be

Much o Canadas current economic

policy uncertainty is due to

contagion rom the US.

Bigstock


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ollowed by indusrial producion drops o 2.5 percen and employmen declines o 2.4million (US).

An obvious concern is causaliy. Since policy making is orward looking and responds ohe economic cycle, perhaps our resuls simply refec a endency or policy o become more

volaile and unpredicable when an economic downurn looms on he horizon. So we canalso examine qualiaive evidencesurveys rom businesses and consumers abou he acorsinfuencing heir decisions, which also sugges a role or policy uncerainy. For example, he2012 Naional Federaion o Independen Businesses small rm survey repors ha 35 perceno small rms complain abou uncerainy o governmen acions as a criical problem. Teop concerns, however, were he cos o healh insurance (52 percen) and more general

uncerainy over economic condiions (38 percen) (Dunkelberg and Wade, 2012).Te prospecs or policy uncerainy alling in he near erm do no appear brigh.

Tere are wo reasons or pessimism: one is linkedo he curren poliical agenda, and he oher o hepolarizaion o he US poliical sysem.

Te rs relaes o he curren US policy agenda.Te deal reached a he end o 2012 o aver he so-calledscal cli did litle o address he long-run US sruc-ural deci. Tis is boh large and rending upwards dueo rising healh care coss, primarily rom Medicare. oaddress his, eiher Medicare coss have o be conained,or axes have o be raised subsanially. Te Democras have ercely resised exensive con-rols on Medicare expenses while he epublicans have ercely resised exensive increases inaxes. As such, he curren scenario o lurching rom policy crisis o policy crisis as each newdeb-ceiling deadline arises appears likely o coninue. Tis is no a paricularly US problem.

Many oher OECD counries have budgeary challenges, bu because US expendiure onhealh care as a share o GDP (roughly 19 percen) is approximaely double he OECDaverage, hese cos challenges are paricularly acue in he US.

Anoher acor hampering he abiliy o reach a compromise in Washingon is hepoliical sysems increasing polarizaion. In he House o epresenaives, redisricinghas led o an increasing share o congressional disrics ha are eiher srongly Democraor srongly epublican. Tis means ha he bigges hrea o incumbens is no challengesrom he opposiion pary, bu in heir primaries rom oher pary members. As a resul,poliicians have litle incenive o move o he middle o he poliical specrum o deendagains he opposiion pary, bu insead wan o move o he middle o heir own pary

aciviss poliical specrum. Tis is leading o an increasingly large gap beween he poli-cies and voing behavior o he wo paries. For example, Caroll e al. (2008) repor ha

while he 90h Congress o 1967/68 showed considerable overlap in he voing paterns oDemocras and epublicans, he 110h congress o 2007/2008 showed almos no overlap.Hence, geting agreemen on policies in he House and even he Senae is becoming moredicul over ime as poliicians polarize ino one o wo camps.

In conclusion, economic policy uncerainy has surged since he beginning o he2007-2009 recession and has no allen since. Tis is rue in he US, bu also in Canada

An increase in policy uncertainty o

the size seen on average between

2006 and 2011 will be ollowed by

industrial production drops o 2.5

percent and employment declines o

2.4 million (US).


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and Europe. Tis uncerainy appears o be salling he recovery rom wha has beenhe deepes recession since World War II.

Nobel Prize winning economis Milon Friedman had a guiar sring heory orecessions. When you pluck a guiar sring i bounces back, much like he economy. And

he harder you pluck he sring, he aser he rebound. Bu he salled recovery ollowinghe 2007-2009 recession makes i appear as hough he guiar sring has snapped; heweigh o hisorically high levels o policy uncerainy is wha is salling he recovery.

Te oulook ahead is bleak. US businesses and consumers are going o have olive wih many more years o heighened policy uncerainy. Given he inegraed

and inerdependen naure o he US and Canadianeconomies, his US-based economic policy uncer-ainy will coninue o impede and adversely aecCanadian economic growh. Pu simply, he US and

Canadian economies would bene demonsrably i economic uncerainy emanaingrom policy were reduced. Unorunaely, his looks unlikely o occur soon. Economicpolicy uncerainy is he new normal.

Reerences

Baker, S., Bloom, N. and Davis, S. (2013).Measuring Economic Policy Uncerainy.Sanord mimeo. Economic Policy Uncerainy. , as o January 7, 2013.

Carroll, oyce, Jerey Lewis, James Lo, Nolan McCary, Keih Poole, and Howard osenhal(2008). Who Is More Liberal, Senaor Obama or Senaor Clinon? Working paper, 18 April.

Voeview.com. , as o January 7, 2013.

Dunkelberg, William C. and Holly Wade (2012). Small Business Economic rends.Naional Federaion o Independen Business. , as o January 7, 2012.

Nicolas Bloom is a Proessor o Economics at Stanord University, and

a Co-Director o the Productivity, Innovation and Entrepreneurship

program at the National Bureau o Economic Research (NBER). His

research ocuses on management practices and uncertainty. His workhas been covered in the New York Times, Wall Street Journal, CNN, CNBC,

BBC, the Economist, USA Today, and the Financial Times. He has a BA

rom Cambridge, an MPhil rom Oxord, and a PhD rom UCL.

Prospects or policy uncertainty alling

in the near term do not appear bright.


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2 Americas Spending Crisis

Chris Edwards, Director of Tax Policy, Cato Institute andTad DeHaven, Budget Analyst, Cato Institute

Despie our years o annual budge decis o over US$1 rillion and he mos sluggish eco-nomic recovery since World War II, voers have rewarded Presiden Barack Obama wih a sec-ond erm. Te presiden has suppored a huge growh in ederal spending and decis, believingi o be an economic simulus. Bu while here is litle evidence ha such Keynesian policies acu-ally work, elecoral raicaion o he presidens approachhas urher engrained he idea in Washingon ha higherspending is benecial.

Sadly, his pro-spending mindse is leadingAmerica ino a deep scal hole ha will damage heeconomy or decades o come. Te recen scal clinegoiaions illusrae how he Democras resis even heslighes rims o social programs and he Republicans

block any reducions o miliary spendingeven hough boh areas o he budge haveexpanded grealy in recen years. Overall ederal spending as a share o gross domesic prod-uc (GDP) jumped rom 18 percen when Presiden George W. Bush came o ofce in 2001o 23 percen oday under Obama.

Congressional Budge Ofce (CBO) projecions show where he ederal spending jug-gernau is headed. Wih no changes in policy, spending will rise rom 23 percen o GDP omore han 40 percen by he mid-2040s, causing ederal deb held by he public o soar rom70% oday o abou 250% by ha ime. Te siuaion is even worse han ha because heCBOs basic projecions don ake ino accoun he negaive eecs o rising spending anddeb on GDP growh. As spending and deb rise, GDP growh will all, and hese raios will

rise even aser in a sor o scal deah spiral. How ha deah spiral endsin a caasrophicnancial crisis or a long-erm economic recessionnobody knows or sure.

Te siuaion is even more disurbing because o he Obama adminisraions com-pleely unserious approach o scal reorm in he pasour years. Budge analyss almos universally agreeha he main enilemen programsSocial Securiy,Medicare, and Medicaidare he major drivers o hecoming scal disaser, ye he Obama adminisraion

Spending will rise from 23 percent

of GDP to more than 40 percent by

the mid-2040s, causing federal debt

held by the public to soar from 70%

today to 250%.

The Obama administration has

proposed no serious restructuring

to reduce costs.


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has proposed no serious resrucuring o hese programs o reduce coss. Te adminis-raion has generally ignored he biparisan Simpson-Bowles scal reorm plan, and someDemocras in Congress gh even he smalles reducions o enilemen programs.

Te adminisraions main response o he looming deb crisis has been o campaign

non-sop o raise marginal ax raes on high-income earners. Sadly, imposing higher ax raeson enrepreneurs, docors, angel invesors, and oher highly producive people will suppressGDP growh in coming years, and hus will no help hesiuaion, bu insead accelerae he scal deah spiral.

Even i raising ax raes on high-income earnersdidn damage he economy, i would make only a smallden in ederal decis. In he recen scal cli deal,Presiden Obama was able o ge his pound o fesh romhe wealhy in he orm o higher income ax raes on hose earning more han $400,000(single) and $450,000 (married). However, he presidens long-sough vicory or incomeredisribuion is only expeced o raise abou $600 billion over he nex decade, which isiny racion o oherwise previously expeced decis o abou $10 rillion over ha period.

Te lack o seriousness in he Obama adminisraions scal approach was exem-plied by he presidens iniial proposal o epublicans o avoid he scal cli. Iincluded $50 billion in new spending o supposedly simulae he economy, whichcomes on he heels o more han $5 rillion in deci-spending over he las our

years. A he same ime, he adminisraion seems oignore ha is own reasury Deparmen publishesesimaes showing ha he long-erm ununded lia-

biliies o Social Securiy and Medicare are in he ens o rillions o dollars.For heir par, many epublicans acknowledge ha spending mus be cu subsan-

ially i he Unied Saes is o avoid a deb crisis. Unorunaely, he acual proposals puorh by he GOP o address overspending have allen ar shor. Even he supposedlyradical budge proposal by House Budge Commitee chairman Paul yan (-WI) isshor on deails and has ew acual program erminaions.

Furhermore, despie he 2010 congressional elecions ha pu dozens o eaPary scal conservaives in he House, he epublicans have shied away rom ryingo acually end programs or downsize ederal agencies. Indeed, on he ew House voesaken on eliminaing specic welare-sae programs in he pas wo years, large num-bers o epublicans have joined he Democras in blocking cus.

Te message o a Canadian audience is ha he image o American epublicans

as a band o budge-cuting zealos wih chainsaws is, unorunaely, ar o-base. JeanChreien and Paul Marin had ar more success a cuting budges in he 1990s hanepublicans have ever had. Meanwhile, American Democras share he same big-spend-ing philosophy as Canadas New Democraic Pary.

Te upsho is ha he US scal siuaion is very grim. Mos members o Congress and heObama adminisraion suppor increased spending in he ace o he ongoing food o red ink.Te huge decis combined wih a highly-skewed ax code ha exemps abou hal o he publicrom paying income ax means ha many people don eel he direc pain o big-governmen

... Republicans have shied away rom

trying to actually end programs or

downsize ederal agencies.

The US scal situation is grim.


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spending. A he same ime, he gov-ernmen is able o nance is morehan $16 rillion in deb held byhe public a very low ineres raes,

which encourages policymakers oborrow even more.And ye he American public

does occasionally rise up and revolagains big governmen excesses, asi did in 1980, 1994, and 2010. I isalso rue ha epublicans orcedhrough he 2011 Budge Conrol Ac, which pu legal caps on non-enilemen spendingor he nex decade. I is rue as well ha growing numbers o policymakers are hinkingabou Americas place in he global economy and are realizing ha he counry may go he

way o Greece i i isn careul. Tere has also been growing ineres in Washingon regardingsuccessul oreign reorms, including Canadas impressive scal reorms o he 1990s.

However, balanced agains hose poins o opimism are numerous risk acors o heUS scal oulook ha are oen overlooked. Even i he economy recovers in he nex coupleo years and ederal revenues rise, policymakers will likely nd new reasons o spend moremoney and keep decis high. Anoher economic downurn would bring orh demands ormore Keynesian spending simulus. A new miliary confic would push up he already bloaeddeense budge. And as weve seen in he wake o Hurricane Sandy, every unexpeced nauraldisaser is an excuse o open he spending foodgaes or inrasrucure and aid paymens.

Te scal realiy is ha policymakers have no choice bu o sharply reduce spendingi he US is o head o he looming scal rain wreck. Unorunaely, i does no appear

ha hey are prepared o make he necessary spending cus a his ime. Unorunaely,he longer hey wai, he more dicul will be he reorms.

Chris Edwards is the director o Tax Policy Studies at the Cato Institute

and is editor owww.DownsizingGovernment.org . He is a top expert

on ederal and state tax and budget issues. Born and raised in Ottawa,

Ontario, he is the author oDownsizing the Federal Governmentand

co-author oGlobal Tax Revolution. He holds a B.A. and M.A. in economics.

Tad DeHaven a budget analyst on ederal and state budget issues or the

Cato Institute and helps manage www.DownsizingGovernment.org . His

articles have been published in the Washington Post,Washington Times,

New York Post, Wall Street Journal Online, National Review, and Politico.com.

Bigstock


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3 How Canada Could Take Advantage o

Changes to US Tax Policy

David R. Henderson, Associate Proessor o Economics,Graduate School o Business and Public Policy at the NavalPostgraduate School

Te laes increase in ax raes on high-income people in he Unied Saes ha Congressand Presiden Obama agreed o earlier his monh gives he Unied Saes one o he mosseeply progressive ederal income ax sysems in he G7 counries. Ta is, he income axraes are much higher or high-income people han or low-income people. Bu even givenhose increases, wo hings are clear: or a leas he nex ew years, and probably he nexdecade, American individuals and couples will sill be more lighly axed han Canadians,and American corporaions will be much more heavily axed han Canadian corporaions.

Apar rom hese wo broad generalizaions, here are some ineresing dier-ences beween he wo counries on he esae (or deah) ax and he axaion o

dividends and capial gains.Firs, he big picure. Te main source o reve-

nue or boh Canadian and American governmensis individual income axes. A rs glance, he USax sysem seems much harsher on individuals handoes Canadas: he op marginal ax rae in Canada is29 percen; in he US i is now 39.6 percen. Bu hedeails reveal a dieren picure. In 2012, Canadas op29 percen rae was on all income above a CA$132,406hreshold. By conras, he USs op 39.6 percen rae

is on all income above US$450,000 or married couples and $400,000 or singles.Americans making he US equivalen o $132,406 pay a marginal rae o 25 percen(married) or 28 percen (single). Canadians wih income beween $85,414 and $132,405 (he vas majoriy o Canadas upper middle class), pay a marginal rae o 26 percen.Teir US counerpars pay 28 percen (single) and 25 percen (married).

So he raes look roughly comparable. Bu his ignores sae and provincial incomeax raes. Almos all provincial governmens have much higher axes on individualincome han almos all sae governmens. In Onario, or example, he second highes

Over the next decade, Americas

individuals will still be more

lightly taxed than Canadians, and

American corporations will be much

more heavily taxed than Canadian

corporations


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income ax rae on individuals, 17.41 per-cen, kicks in a an income o only $80,441.ha means ha an Onarian making$80,441 pays a combined ederal and pro-

vincial marginal ax rae o 43.41 percen. Inexas, which has no income ax, ha sameperson would pay 28 percen (i single) andonly 25 percen (i married.)

has he dierence beween keep-ing only 57 cens o every addiional dollarearned and keeping a leas 72 cens o eachaddiional dollar earned. Te comparisonor Quebec is even more sriking. Te 24

percen op rae sars a an income o $80,200. A ha income level, Quebecers keeponly hal o every addiional dollar earned. Only Albera, wih a op income ax rae o10 percen, hreaens o compee wih he Unied Saes.

Payroll axes, on he oher hand, are much lower in Canada. o und is CanadaPension Plan, he Canadian equivalen o Social Securiy, he governmen axes employ-ers and employees 4.95 percen each on he value o employmen beween $3,500 and$50,100. Compare ha o Social Securiy axes in he Unied Saes, which are 6.2 per-cen each or employer and employee on all employmen income up o $113,700. Te

vas majoriy o Americans earn below $113,700. Moreover, he US governmen axes allemploymen or Medicare, is socialized medical sysem or he elderly, a 1.45 perceneach or employer and employee wih no upper limi on he amoun o employmenincome covered.

A paricularly unair ax on individual income is he ax on dividends and capialgains. Tese axes are unair because hey amoun o double axaion. Someone whoearns, say, $1,000 pays ax on i when he earns i, bu pays no addiional ax, oher hana sales ax, i he spends i. Bu i he saves and invess he aer-ax amoun, he pays aax on any dividends and a urher ax on his capial gain when he sells his invesmen.ecognizing his ac, ormer Presiden George W. Bush and Congress cu he ax raeson qualied dividends and on long-erm capial gains o 0 percen or low-incomepeople and 15 percen or higher-income people. Under he new law, he op rae orhe highes-income people will be 20 percen. Tas no all. Beginning his year, here isan added 3.8 percen ax rae on invesmen income

or high-income people. Is par o he healh carelaw, oen called Obamacare, passed in 2010. So heop ax rae on dividends and long-erm capial gainshas jus risen rom 15 percen on he highes-incomepeople o 23.8 percen, a 59 percen increase. Andha does no include sae axes on capial gains. In he highes-ax saes, combinedederal and sae axes on capial gains or high-income people are now over 30 percen.

Lighter tax treatment o both capitalgains and dividends is an advantage

or Canada.

Bigstock


23/49


In Canada, by conras, people are axed a normal income ax raes on hal o heircapial gain. Ta makes he op ederal ax rae on capial gains 14.5 percen. Add in pro-

vincial ax raes on capial gains and he overall rae goesrom 19.5 percen in Albera o 25 percen in Nova Scoia.

In shor, capial gains or high-income people are nowaxed more lighly in mos Canadian provinces han inmos US saes.

Te ligher ax reamen on boh capial gainsand on dividends is an advanage or Canada. Were he ederal governmen o cu ed-eral income ax raes and he provincial governmens o cu provincial raes by jusa ew percenage poins each, Canada would be in serious compeiion or he mosproducive Americans.

One aspec o he US ax sysem where or jus one year Americans had a clearadvanage over Canadians was he euphemisically named esae ax. For 2010 only,he US esae ax was zero. Te ax is no on esaes per se: someone who remains alivedoes no pay i. Insead, i really is a deah ax, as many o is criics have named i.Under he bill passed o aver he scal cli, esaes over $5 million are axed a a raeo 40 percen. Canada, meanwhile, abolished he esae ax in 1972, hough i does havesomehing akin o an esae ax. W hen a person dies in Canada, he ederal governmendeems he persons asses o be sold and levies axes on he esaes income and capialgains.

On corporae income, he roles are reversed. US governmens ax corporaeincomes much more heavily han do Canadian governmens. Te US ederal ax rae is35 percen, compared o only 15 percen in Canada. Sae and local governmens addan average o 7.5 percen on corporae income, bu because hese axes are deducible

agains axable income a he ederal level, he ne corporae income ax rae is abou 40percen. In Canada, when provincial corporae axes are added in, axes on corporaionsare a much lower 27 percen.

Canadian governmens are saying o Americans, in eec, Send me your huddledcorporaions yearning o keep more o heir earnings; I li my lamp beside Vancouver,Calgary, and orono.

David R. Henderson is an associate proessor o economics at the

Graduate School o Business and Public Policy at the Naval Post-

graduate School in Monterey, Caliornia, a research ellow with theHoover Institution, and a senior ellow with the Fraser Institute. He

is the editor oThe Concise Encyclopedia of Economics (Liberty Fund,

2008) and blogs at www.econlog.econlib.org. He was born and

raised in Manitoba.

US governments tax corporate

incomes much more heavily than doCanadian governments.


24/49

4 Canadas Challenges in the Face o US

Monetary Policy

Jerry Jordan, Former President, Clevland Federal ReserveBank and President, Pacifc Academy or Advanced Studies

Like oher major cenral banks, he US Federal eserve has a saed objecive o assuringa low, maximum rae o infaion. Unlike oher cenral banks, he Federal eserve also has

been assigned by Congress he simulaneous ask o achieving and mainaining a low levelo unemploymen. No surprisingly, hese wo objec-ives oen seem o be opposie ends o a eeer-oterpushing down on one raises he oher, and vice versa.

For he pas ew years he infaion rae has been aor below he accepable upper limi, while he unemploy-men rae has been considerably above he accepable

limi. Te naural consequence has been much atenion o cenral bank saemens and acionsha are ocused on reducing unemploymen. An obvious quesion is: wha acions are beingaken by he cenral bank ha are inended o lower unemploymen? And, wha are he likelyeecs o hose acions on he oher objecive o mainaining an accepably low rae o infaion?

Progress owards achieving he objecives o moneary policies is usually gaugedby various arges and indicaors o policy acionshe level o ineres raes, growh obank reserves, expansion o he naions money supply, or he availabiliy o bank credi.Hisorically, he US cenral bank se a shor-erm arge or he overnigh inerbankraeknown as he Federal unds rae (FF)and announced changes in he level ohis arge as necessary o achieve he desired inermediae objecives in erms o lon-

ger-erm ineres raes, or he growh raes o he various measures o reserves, money,and credi ha were moniored by he policymakers.Daily acions o injec or drain unds rom he iner-bank marke were he criical acions o monearypolicyi he arge level o he FF was se appro-priaely, he infaion rae would no rise above hedesired level and he unemploymen rae would bea an accepably low level.

For at least the next couple o years,

the Federal Funds rate will be largely

irrelevant.

The central banks balance sheet...

has ballooned to almost three

times its size beore the global

inancial crisis.


25/49


During he Grea Moderaion o he later paro he 20h cenury and he early years o he newmillennium, his approach o seting and hiting anovernigh ineres rae in order o achieve ulimae

objecives o infaion and employmen workedvery well. As necessary, policymakers would raisehe FF arge o slow he growh o reserves, money,and credi o lean agains emerging infaionarypressures. A oher imes, hey would reduce he ar-ge o couner economic weakness and rising unem-ploymen. All ha ended wih he global nancialcrisis o 2008 and he subsequen Grea ecession.

For a leas he nex couple o years, he FFwill be largely irrelevan. Is highly unlikely ha here will be an announced change inhe FF, and i wouldn aec anyhing i here were such an announcemen. Te cenralbank is aking no daily acion o mainain he announced raeno purchases or saleso shor-erm reasury bills, no repurchase agreemens, and no domesic reverse-repur-chase agreemens. In ac, he Federal eserve no longer owns any reasury bills andhas been aggressively selling he remaining one- o ve-year securiies.

Whas le? Te cenral banks balance sheehe moneary basehas balloonedo almos hree imes is size beore he global nancial crisis. On he asse side, i is moslylong-erm US reasury deb and morgage-backed securiies. Te liabiliies now include over$1 rillion o currency ousanding and almos $1.5 rillion o commercial bank deposis ahe cenral bank ha are classied as excess reserves. Litle is known or cerain abou hemoivaions o bankers (mosly oreign banks and US aliaes o oreign banks) holding hese

enormous balances ha are earning only percenage poin ineres. Tey may be meeingdemands o oreign bank supervisors or greaer liquidiy, hey may be serving as collaeral oroher ransacions or even deb capial issued by he banks, or in some oher way represenreserve balances required by oreign supervisors. Teessenial poin is, no much can be cerain abou he uli-mae disposiion o hese balances. As long as hey exis,he overnigh inerbank rae is useless as eiher a arge oran indicaor o cenral bank inenions.

Neverheless, he sheer magniude o cenralbank balance shees (including hose o he European Cenral Bank, he Bank o

England, and he Bank o Japan) raises he specre o sharply higher infaion in heuure. Some orecasers assume ha i is only a mater o a bi more ime beore heinheren resiliency o a marke economy akes hold, animal spiris o creae wealh willdrive up loan demand, banks will respond o he higher, risk-adjused raes o reurns oncommercial loans and rapidly reduce holdings o idle excess reserves. Te monearybase canno shrink unless cenral banks sell asses rom heir porolios, so he monearymuliplier mus rise as excess reserves all and required reserves rise, and he consequenexplosion o socks o money and bank credi will be infaionary.

The spectre o sharply higher

infation looms in the uture.

Rdsmith4


26/49


Te response o his scenario by some skepics is ha even i real wealh-creaing aciv-iy sars o increase and loan demand aced by banks sars o increase, he cenral bank willraise he ineres rae paid o banks or heir idle balances so he banks will coninue o nd imore proable o hold excess reserves raher han make loans. Tis sanguine view imagines

ha cenral banks are sucienly independen o poliical oversigh ha he moneary pol-icymakers will explain o he peoples eleced represenaives ha here were privae-secorrms ha saw opporuniies o creae wealh and employmen and he cenral bank is deer-mined o pu a sop o such ani-social behavior. O course, as long as he unemploymenrae remains elevaed, he cenral bank will neiher seek o raise ineres raes nor sell asseso shrink excess reserve balances.

One can easily nd reasons o agree or disagree ha here is signican risk osharply higher infaion in he near erm. Longer-erm, however, moneary policy is ascal insrumena way o nancing governmen. Fiscal dominance means he unleg-islaed ax o infaion is a serious risk i spending by governmens is no consrained.Ulimaely, a sociey ha is unwilling or unable o conrol spending by governmenwihin he limis o explici axaion will choose he lesser-evil o debasing he currency.

Canada and oher smaller open economies such as Ausralia, New Zealand, andSwizerland will ace dicul policy choices as he large, deb-and-deci economies ohe US, Europe, and Japan become more oleran o rising infaion. Currencies o infa-ion-prone counries are weak in oreign exchange markes versus he currencies o coun-ries ha seek sable purchasing power o heir naional currencies. Persisen appreciaiono he Canadian dollar agains he US dollar (and he euro, yen, and Briish pound) willmean increasing compeiive pressures on boh Canadian indusries and rms ha seeko expor, and on Canadian companies ha mus compee wih oreign impors.

Hisorically, policymakers in open economies where some indusries experience los

inernaional compeiiveness eel domesic poliical pressures o: (a) inervene in nancialmarkes o weaken he currency; (b) adop rade barriers o rising impors; and/or (c) pro-

vide subsidies o avoured rms and indusries adversely aeced by oreign compeiion.I is likely ha poliical leaders a boh he provincial and ederal level in Canada will bechallenged o make dicul policy choices as a resul o he deb and deci and monearyproblems o he US, Europe, and Japan.

Jerry L. Jordan is ormer President o a Federal Reserve Bank and a

ormer Member o President Reagans Council o Economic Advis-

ers. He is a Senior Fellow o the Fraser Institute and President o the

Pacic Academy or Advanced Studies.


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5 Energy Policy in Obamas Second Term

Kenneth P. Green, Senior Director, Energy and NaturalResource Policy Studies, Fraser Institute.

he bes predicor o wha Presiden Obamas energy policy wi ll be in his seconderm is, naurally, his rack record on he issue in his irs erm. Several rends wereclearly visible during he Obama Adminisraions irs erm: a disinc anipahy orossil uels (especially high-carbon orms such as coal), an equally disinc anipa-hy or he producers o ossil uels (especially oil companies); and a belie in he

green dream, wherein governmen picks which uels, which sources o energy, andwhich devices belong in he uure, and which do no. hroughou his irs erm,heres no doub ha he Presidens rheoric was ani-coal and ani-oil. In paricular,Presiden Obama has shown lile love or Canadian oil, reusing o approve heKeysone XL pipeline ha would bring oil rom Canadas oil-sands o reineries in

he US Gul Coas.In his irs erm, Presiden Obama pu orh exremely bold goals or

Americas energy economy, pledging ha America wi ll generae 80% o is elec-riciy using renewables by 2 035, and ha i will sharply increase he uel econ-omy o is vehicle lees as well. he adminisraion did make some srides owardhose goals: in 2012 i implemened new vehicle uel economy sandards ha callor a near doubling o vehicle mileage by 2025.

In he main, however, he rs Obama adminisraion was no paricularly eecivea implemening policies ha refeced is expressed ani-ossil-uel preerences. Oherhan hrowing a grea deal o so-called simulus money a an array o quesionable

green energy and green job iniiaives, Presiden Obamas rs erm saw supendousgrowh in oil and gas producion, while coals declin-ing consumpion rae is primarily atribued o helow price o naural gas. A quick snapsho o USenergy policy is in order.

As he Unied Saes Energ y InormaionAdminisraion (EIA) observes, while coal consump-ion in he Unied Saes has declined due o very low

Oil production on ederally

controlled lands slowed during

Obamas rst term; production

on privately-owned and state-

controlled lands rose sharply.


28/49


naural gas prices, coal producion andexpors are srong, and consumpionis expeced o rebound as naural gasprices rise o more susainable levels.

Te EIA projecs an 8% increase inmarke share or coal-red elecriciyproducion in he US (EIA, 2012a).Te record or expors was se in 1981,when he US produced 113 millionshor ons o coal, a record ha EIApredics will all in 2012 when UScoal producion will reach 125 millionshor ons (EIA, 2012b).

Oil producion was a key ele-men o discussion in several presi-denial debaes, and in innumerablespeeches leading up o he elecion. Iis clear ha while oil producion onederally conrolled lands slowed dur-ing Obamas rs erm, producion onprivaely-owned and sae-conrolledlands rose sharply. Te slowdown onederally-conrolled lands was pri-marily due o a moraorium and per-miting changes ha ook place in he

aermah o he Deepwaer Horizonoil spill in 2008. Naionally, oil pro-ducion rose 14% rom 2008 o 2011, and he rend shows no sign o slowing (EIA,2012c). Te EIA predics annual growh in oil producion o 234,000 barrels per day,reaching a level o 7.5 million barrels per day by he end o he decade (EIA, 2012d).

Te big sory in US energy producion is, o course, he supendous growh oshale-gas producion. Like oil producion, US gas producion also rose by 14% rom2008 o 2011, a rend he EIA expecs o coninue. Is newes orecas suggess ha USdry gas producion will oupace consumpion by 2020, leading o ne expors o nauralgas. And has despie increasing domesic consumpion, which he EIA also expecs

o coninue as naural gas displaces coal in he US indusrial and power secors (EIA,2012d).

enewable energy generaion in he US is also expeced o grow, hough i willremain a relaively small conribuor o US energy producion. Te EIA orecass harenewable energy generaion will rise by 3% over he nex 30 years (EIA, 2012d). Moso his increase is expeced o come rom solar power; he EIAs laes orecas is morepessimisic abou biouels han were previous orecass (EIA, 2012d).


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30/49


Reerences

US Energy Inormaion Adminisraion (2012a). Shor-erm Energy Oulook (SEO)(December). , as o

December 19, 2012.

US Energy Inormaion Adminisraion (2012b). oday in Energy: US Coal Expors onRecord Pace in 2012, Fueled by Seam Coal Growh. Web page (Ocober 23). , as o December 19, 2012.

US Energy Inormaion Adminisraion (2012c). able 1.2: Primary EnergyProducion by Source, Seleced Years, 1949-2011.Annual Energy Review 2011. Webable. , as oDecember 19, 2012.

US Energy Inormaion Adminisraion (2012d).Annual Energy Oulook 2013 EarlyRelease Overview. , aso December 19, 2012.

Kenneth P. Green is Senior Director, Energy and Natural Resource

Policy Studies at the Fraser Institute.


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6 US Energy and Environment

Policymaking in Obamas Second Term

Chris Horner, Senior Fellow, Competitive Enterprise Institute

Second presidenial erms ypically see ewer major legislaive proposals and greaerocus on implemening rs-erm legislaive accomplishmens. Presiden Obamas sec-ond presidenial erm should be no dieren.

Aer an early eor o impose greenhouse gas conrols via cap-and-rade legis-laion ailed (elled by his own pary in he Senae hey conrolled) Presiden Obamahas sough o use exising laws and his execuive abiliy o achieve iniiaives oherwiseproperly reserved or Congress beginning by clamping down on carbon dioxide emis-sions under he 1990 Clean Air Ac Amendmens. Anoher example was he negoiaiono aggressive uel economy sandards or vehicles ha Canada recenly agreed o adopas well.

Te greenhouse gas regulaions now blossoming are among an expeced delugeo second-erm regulaions o be imposed in he name o clean energy and/or savinghe environmen. Tey refec a balancing ac ha pis ideological desires or higherenergy prices agains he poliical imperaive o no increasing hem oo quickly orhe publics comor or he uncioning o he economy.

A major es o Obamas agenda will be his managemen o ha ension and howi plays ou poliically. We are only hree years removed rom he 2009-2010 popularuprising ha propelled a wave o epublicans wih ea Pary leanings ino he USHouse o epresenaives. Ta urore was spurred in appreciable par by energy andenvironmen issues (recall green jobs, Solyndra and allegaions o crony green cap-

ialism, and cap-and-rade). Ta being said, he elecorae gave Mr. Obama a seconderm, one ha is expeced o coninue wih he same prioriies.

Even hough i is major legislaive iniiaivesmore han regulaions ha moivae voers ino hesrees, Congress will become sensiive o all con-cerns as houghs soon urn o he 2014 elecions. Asecond-erm presidens pary hisorically loses over30 seas in Congress a he mid-erm. Tis is o less

President Obama has sought to

use existing laws and his executive

ability to achieve initiatives otherwise

properly reserved or Congress.


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concern o a re-eleced Presiden Obama han o his congressional allies, urher sug-gesing ha energy and environmenal iniiaives will no come rom Congress, whichmay insead be willing o exer srong oversigh.

Congresss willingness o fex is ew muscles

will be dicaed by how voers reac o Obamas reg-ulaory push, which in urn will depend upon howaggressive he is. Oversigh seps include hearings andCongressional program reviews, voes o disapprovenew regulaions under he Congressional eview Ac,or even he amendmen o underlying saues o halperceived overreach and abuse i members o Congress eel enough public pressure.

Expeced areas o conlic in he second Obama erm include he oherwisesleepy opic o energy-relaed permiing, wheher i relaes o onshore produc-ion, oshore producion, or pipeline consrucion. he adminisraion is likelyo coninue is unprecedened bias oward as-racking renewable energy proj-ecs on ederal lands, including oshore, coupled wih holding up and scalingback hydrocarbon projecs. Signs are ha his hosil iy wi ll exend o ex pors,e.g., liqueied naural gas, and o course impors wih he Keysone XL pipelinebeing he marquee permiing issue. he Sae Deparmens coninuing sr uggleo resolve he Keysone XL pipelines applicaion should exend a leas o heend o he irs quarer o 2013. esoluion o his issue likely will rame he reso he energy debae.

Permiting also implicaes he growing batle over he naions naural gas boom,one o he economys ew brigh spos. Tere is a pending Bureau o Land Managemen(BLM) rule o require disclosure o chemicals used in hydraulic racuring (racking)

fuid and esablish well-inegriy sandards on ederal and Indian lands. Te rule wasexpeced o be nalized a he end o 2012. I is now under review and is likely he pre-amble o an atemp by he Environmenal Proecion Agency o regulae all rackingunder he Sae Drinking Waer Ac. Tis is considered par o he Obama adminisra-ions larger inenion o cenralize oversigh o he oil and naural gas exracion processrom he saes o he ederal governmen.

Opponens ear ha he eor o seize jurisdic-ion is simply a move o discourage exploraion andproducion o a process ha has been saely regulaedor decades by he saes. o he exen ha hydraulic

racuring does pose risks, i seems o be he drillingo wells, raher han he hydraulic racuring isel haneeds improvemen (Gold, 2012).

Wih Americans ocused ighly on he economy, he BLM rule was unlikely ogain racion as a campaign issue, so is delay likely signals recogniion o he perils oaking on one o he ew indusries spurring growh in he US economy, apping he

vas supplies, and beneting rom he subsequen lowered price, o naural gas.

Expect a deluge o second-term

regulations to be imposed in the

name o clean energy and/or saving

the environment.

The intention is to centralize

oversight o the oil and natural gas

extraction process rom the states to

the ederal government.


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he adminisraion has no such qualmsabou debiliaing he domesic coal indusry,no only by making i more dicul o burn coal

bu also using he Clean Waer Ac o hobble

new and even exising permis o produce i.Among oher expensive EPA regulaionsexpeced in 2013 and lised in a repor bySenaor James Inhoe o Oklahoma are: reg-ulaion declaring coal ash o be a hazardoussubsance, ier III gas regulaions reducinghe sulur conen in gasoline rom 30 pars permillion o 10 ppm (US Senae Commitee onEnvironmen and Public Works, 2012). In laeDecember, he EPA nally issued wo delayed

regulaions, Naional Emission Sandard or Hazardous Air Polluans or indusrial,commercial, and insiuional boilers and or cemen kilns. Tese are widely expecedo orce he shudown o massive numbers o boilers and dramaically increase hecos o producing cemen domesically.

Tese are mere examples o an expeced regulaory cli because he Obamaadminisraion had held up many regulaions or nal approval, ciing he need o bal-ance economic coss o regulaions wih heir benes. Some would argue ha his wasmore a g lea han a raionale, as all signs in 2011 poined o a very igh elecion, and

kicking he can down he road is a well-known American poliical pasime.Bu Presiden Obamas las elecion is behind him, and he regulaory spigo is

opening. Te Keysone decision and issues relaing o he naural gas boom refec he

dominan ension Presiden Obama aces: how o pursue an ani-hydrocarbon energyagenda he shares wih his environmenalis allies while mainaining poliical capial,

which can only come by ensuring some posiive level o economic growh. Ta growh,while anaemic, is in large par due o a hydrocarbon boom. In he end, expec a sraddle,i one ha has a clear bias oward conrolling resource producion, consumpion andrade.

Te primary implicaions or Canada res on he ac ha Canada has long helda policy o harmonizing environmenal regulaions wih hose o he Unied Saes, aleas he major ones such as Naional Ambien Air Qualiy sandards. Par o his is dueo he Norh American Free rade Agreemen which urges harmonizaion o rules as

hey ighen, bu no i hey loosen (Bedros, 2009). I he US is paricularly aggressivein ighening such environmenal sandards a highcos, Canadians could soon see heir own economyaeced hrough he harmonizaion process.

Te ulimae quesion or Presiden Obama, ohe exen he remains undecided, is wheher o ollowCanadas urn o resource developmen as a desired,no merely oleraed and emporary, componen o a

I the US is aggressive in tightening

environmental standards at high

cost, Canadians could soon see their

own economy aected through the

harmonization process.

Fotolia


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growh plan. Were he o do so, he could go a long way o ensuring ha he US economybegins a long-awaied reurn o a sound ooing which would bene Canada as wellahealhy rading parner is beter han one slogging hrough los-decades o lacklusereconomic perormance.

Reerences

Bedros, Francis (2009). Harmonizaion o Environmenal Sandards and Convergenceo Environmenal Policy in Canada: Te NAFA Conex. NAFA @ 10 Essays.Foreign Aairs and Inernaional rade Canada. , as o December 28, 2012.

Gold, ussell (2012, March 25). Fauly Wells, No Fracking, Blamed or WaerPolluion. Te Wall Sree Journal. , as o December 28, 2012.

US Senae Commitee on Environmen and Public Works (2012). New Senae ReporReveals Economic Pain o Obama-EPA Regulaions Pu on Hold Unil Aer he Elecion.Press elease. , aso December 28, 2012.

Christopher C. Horner is a senior ellow at the Competitive Enter-prise Institute in Washington, DC, and author o several books on

energy and environment policymaking.


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7 Washingtons Inadvertent Message to

Canada: Diversiy

Alexander Moens, Proessor o Political Science, SimonFraser University

Canadian-American economic cooperaion is in a period o decline. Te problem is noideological confic or rade dispues. aher, he roo cause is American economic andscal vulnerabiliy magnied by poliical weakness. Unlike previous occasions when

Washingon did no pay enough atenion o Canadas key ineress and hus provokedmore ranic atemps by Otawa o regain he atenion o is gian riend and radingparner, his ime Otawa is deermined o look elsewhere in order o reduce is overalleconomic dependency on he Unied Saes. A he same ime, he economic and scaldisarray in Washingon, which will coninue aer he January 1, 2013, deal o aver ascal cli, is making he Obama adminisraion even more proecionis and oblivious

o is Norh American parners. aher han bringing Canada and Mexico along opresen a single Norh American approach in he rans Pacic Parnership alks wihhe large economies o Japan and Souh Korea, Washingon has sough o keep hemou. Even hough Canada has been negoiaing wih he European Union on a com-prehensive rade agreemen, i is no clear where Canada will sand i he Unied Saesshould engage he EU in similar alks his year.

Diversicaion is currenly much oued in Canada. Canadian economic and poli-ical leaders eel conden abou how Canada has weahered he nancial and economicsorms ha have raged in he Unied Saes and are ongoing in Europe. Tey now seegrowh opions or Canada mainly ouside o Norh America. Selling oil and naural

gas o Asia is he new prioriy.Te resuling dri in poliical relaions is likely o worsen in he nex wo years

because Canada is no likely o eaure signicanly in Presiden Obamas oreignrelaions or rade agendas. Surprisingly, he dri hasoccurred a a ime when he Canadian governmen was

well prepared and moivaed o avoid i and o deepenis ies wih he Unied Saes.

Canada is not likely to eature

prominently in President Obamas

oreign relations or trade agendas.


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From he beginning o hiserm in 2006, Prime MiniserSephen Harper has pursued apragmaic, issues-based relaion-

ship wih his counerpars inWashingon. He has side-seppedhe poliical liabiliy ha hamperedPrime Miniser Mulroney or beingseen as oo riendly wih Americasleaders while also avoiding he losso credibiliy in Washingon habese earlier Canadian governmenswho ried o score poliical poins ahome by blaming he Unied Saesor beliling is policies. houghhe Obama adminisraion camein wih a very dieren agenda in

boh domesic and oreign policy,he Canadian governmen had noparisan or ideological liabiliies o overcome o coninue consrucive cooperaion.

Te rs poin o major ension beween Presiden Obama and Prime MiniserHarper arose regarding he 2009 US simulus bill. Te new presiden did no expendany poliical capial in Congress o push back he inserion o a Buy America provi-sion in he inrasrucure and public works procuremen pars o he bill, and herebydid nohing o ensure ha Canadian suppliers and maerials would have access o US

governmen simulus spending. In keeping wih is moivaion o work consrucivelywih he US, he Canadian governmen negoiaed skilully behind he scenes unil acompromise was ound.

ealizing ha Canada aces a long-erm economic vulnerabiliy rom so-calledborder hickening, Prime Miniser Harper gradually won he US over o he idea ochanging he recen patern o layer-upon-layer o addiional securiy regulaions a heborder. Te main lure or Washingon in coming o an agreemen was o expand USexpors o Canada, while or Canada i was o reduce he impac o securiy regulaionson rade and ravel. Te new vision has wo hemes: perimeer securiy and regulaoryharmonizaion. Te new measures will ake eec gradually.

Because Canadas energy rade and mos o is manuacuring rade is wih heUnied Saes, i is pruden or Canadian regulaionsin hese secors o be compaible wih hose in he US.

Avoiding policies regarding so-called greenhouse gas(GHG) emissions ha are eiher evidenly more oner-ous or liberal han American policies creaes a unila-eral risk. Tus, he Canadian governmen careully

The main lure or Washington was

to expand US exports to Canada,

while or Canada it was to reduce

the impact o security regulations on

trade and travel.


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avoided pronouncing on he policy debae regarding cap-and-rade ha waged duringhe Presidens rs year.

Despie he sound managemen o bilaeral relaions as well as considerableCanadian assisance in Aghanisan and Libya, he Obama adminisraion chose easy,

immediae, and relaive gain over absolue gain when i reused o expend any poliicalcapial on permiting he Keysone XL expansion. In ac, he Whie House overrodehe recommendaion o he Deparmen o Sae. Te Canada-US bilaeral relaionshipis based on he premise ha only he presiden can wield enough poliical capial in hedivided srucure o US governmen when narrow lobbies seek o do harm o he overalland long-erm benes o cooperaion beween our wo counries. When he choosesno o do sorepeaedly in he XL caseCanadian ineress do no sand a chance.Naurally, when Otawa eels i is reaed as blaanly expendable, i begins o look wihnew ervour or diversicaion away rom he American economy.

Barring any crisis ha brings he wo capials ogeher, he nex hree years willsee urher poliical diversicaion beween Otawa and Washingon. Te harsh realiyor Canada abou he newly emerging inernaional sysem is ha he Unied Saes willno be willing o deal wih Canada on rade and invesmen in a sraegic manner unili needs cooperaion wih Canada (and Mexico) because o is own relaive weakness

vis--vis he res o he world, and ha will sill be anoher decade or so in my esimaion.Canada mus be in a much sronger bargaining posiion by hen. Diversicaion

requires more han oreign rade and invesmen deals. Te Canadian legal and regu-laory ramework needs o nd a way o o overcome aboriginal and environmenalheadlocks on energy, mineral, and inrasrucure developmens.

Canadas rs 100 years o economic developmen and rade was based on a dom-inan relaionship wih he Unied Kingdom. Te second 100 years o growh has aken

place during a period o close parnership wih he Unied Saes. Te nex phase oCanadas economic developmen will likely ake place in a poliical consellaion oseveral world powers. Canadas well-being will depend on a combinaion o compeiivemarke acors a home, and specic deals wih muliple rading parners abroad, among

which he Unied Saes will likely sill be he larges.

Alexander Moens ([email protected]) is a proessor

o political science at Simon Fraser University in Vancouver and a

senior ellow in American Policy at the Fraser Institute.


38/49


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How much good will and common sense have Prime Miniser Harper andPresiden Obama shown in heir atemps o shore up worlds larges bilaeral rade andinvesmen relaionship? ecen eors warran a B wih los o room or improvemen.

Presiden Kennedy noed ha necessiy makes us allies. rue. And i was he

necessiy o recovery rom he global economic crisisha launched he recen surge o bilaeral coopera-ion. Te 200 9 US housing and banking crises causedbilaeral rade and invesmen fows o plumme and

he Canadian dollar o soar, making our expors more expensive jus as US consumerdemand sagnaed. Te US economy caugh he fu and Canada ended up sneezing.

Te Unied Saes rs response o he crisis was knee-jerk proecionism includ-ing Buy American and Counry-o-Origin labeling. Bu US policymakers recognizedha lasing recovery required ha he US srenghen is capaciy o compee globally,and he global economy begins on he souhern shore o he Deroi iver.2 Te UniedSaes expors more o Canada han o he enire European Union, or o China, Japan,Brazil, and Souh Korea combined.3

Nearly 400,000 people cross he border every day and he value o cross-borderrade is abou a million dollars a minue. Since so much Canada-US rade is alreadyduy-ree, non-ari barriers are he bigges drag on goods and services rade. Tey arealso he mos dicul o eliminae. I is esimaed ha border ineciencies cos heCanadian economy 1% o GDP, or $16 billion a yearroughly $500 or each Canadian.4

In 2011, Canada and he Unied Saes launched wo iniiaives: Beyond heBorder (BB) o speed he movemen o cargo and people across he border and heegulaory Cooperaion Council (CC) o align bilaeral produc sandards, esing,and cericaion mehods.

BB and CC seek o eliminae unnecessary duplicaion o eors, o uncloghe border by moving inspecion and pre-clearance aciviies o pors and acories,and o insiuionalize he principle o checked once,cleared wice, so ha an inspecion in eiher counryis recognized as valid in boh.

Te ideas are simple, he economic eecs arehuge, and he implemenaion deails are saggering.For example, a join cusoms inspecion aciliy ismore ecien han separae aciliies locaed a kilo-meer apar. Bu wha are he legal righs and obligaions o he US ocer quesioning

a Canadian raveler on Canadian soil and vice versa? Ocials on boh sides are makinggood-aih eors o mee he commimens se ou in he BB declaraion bu each sepunearhs sysemic ricions ha mus be worked ou beore urher progress is possible.

2 Windsor, Ontario is south o Detroit, Michigan.3 US Department o Commerce, 2011 fgures.4 Government o Canada, Canadas Economic Action Plan: Beyond the Border Action Plan and Examples oAction Plan Benefts.

The Canada-US relationship is

extraordinarily close, but never easy.

Our trade agreements helped to

reduce barriers, but they lacked the

institutional mechanisms to sustain

uture progress.


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In December 2012, he wo gov-ernmens released he year-one BB andCC progress repors. Te resuls are gen-erally very good, bu hey have allen shor

o promised deliverables such as a plan ora comprehensive pre-clearance sysem orland, rail and marine cargo. More imeand susained poliical and bureaucraicatenion is essenial o nish he job. Inhe end, i is quie likely ha he process

will yield a handul o prety good resuls;he criical quesion is wheher hese ou-comes can be leveraged ino a comprehen-sive se o principles and processes ha

will susain uure cooperaion.Canadas ranking on Presiden Obamas second-erm economic agenda will no

be high. Te Americans ace dauning domesic challenges, a gridlocked Congress, andhave a congenially shor atenion span.

I Canadians are clever, we will use he US desire or ree rade agreemens in Asiaand Europe o bolser our mechanisms or cooperaion a home. Wan o achieve accessor US suppliers in Chinas sub-ederal procuremen marke? Ge rid o Buy Local pro-grams a home and insis ha he Chinese (and ohers) do so as well. Wan o eliminaeregulaory barriers ha hamper American rade wih he European Union? Use hesuccessul US-Canada regulaory cooperaion plan as he emplae or reducing barriersin worldwide. We bene rom his sraegy in wo ways. Firs, he lure o global markes

increases he USs perceived value o compleing agreemens wih Canada. Second, ihe sandards and processes ha we adop wih he U.S. are used in new markes, henCanadian manuacurers have ewer adjusmen coss and a de aco compeiive advan-age in hese markes as well.5

Even i we can susain US poliical atenionlong enough o deliver he promises made on BBand CC, a number o imporan issues remainunouched.

Areas or urher work include a meaningul dia-logue on energy (including supply, regulaion, rans-

poraion, markeing, and invesmen), an agreemenon labour mobiliy ha deals eecively wih skills shorages in rades and echnology,and a join approach o cyber-hreas and economic espionage ha mirrors NORDscooperaive approach o miliary hreas.

5 I Canada and the US have agreed to a common standard on organic produce, or example, and the US reachesagreement with the EU on organic produce, then by deault, the Canadian standard would be acceptable to theEU, even i Canada had not negotiated with the EU directly.

I Canadians are clever, we will

use the US desire or ree trade

agreements in Asia and Europe

to bolster our mechanisms or

cooperation at home.


41/49


Wheher Commander Chauncey reurned he books o he orono Library as anac o good will or jus o avoid hey nes, i is cerain ha as a naval ocer he wouldhave recognized ha he Unied Saes is no an island bu is inexricably linked o isneighbours. As Obama pursues his second-erm agenda les hope he has he common

sense o recognize ha expanding economic cooperaion wih Canada srenghens hecompeiiveness o our wo naions in he world.

Reerences

Governmen o Canada [no dae (a)]. Canadas Economic Acion Plan: Beyond heBorder Acion Plan. Web page. , as o December 28, 2012.

Governmen o Canada [no dae (b)]. Canadas Economic Acion Plan: Examples oAcion Plan Benefs. Web page. , as o December 28, 2012.

Kennedy, John F. (1961).Address beore he Canadian Parliamen in Otawa (May17). Web page. , as oDecember 28, 2012.

orono Public Library (2012). Hisory o he orono Public Library. Web page., as oDecember 28, 2012.

ruman, Harry S. (1947).Address beore he Canadian Parliamen in Otawa ( June 11)., as o December 28, 2012.

Laura Dawson, PhD, is the President o Dawson Strategic (http://daw-

sonstrat.com/), which provides advice to business on cross-border trade,

market access, and regulatory issues. Previously, she served as senior

advisor on US-Canada economic afairs at the United States Embassy

in Ottawa and contributed to the launch o the US-Canada RegulatoryCooperation Council and the Beyond the Border agreement.


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9 The Efect o US Financial Market

Regulation on Canada

Moin Yahya, Associate Proessor o Law, University o Alberta

No legislaion concerning he nancial markes is expeced o be proposed by heObama adminisraion or o be passed by Congress in 2013. Tere are, however, manyongoing regulaory developmens aking shape. Congress passed he Dodd-Frank WallSree eorm and Consumer Proecion Ac (Dodd-Frank) in 2010, bu le much ohe heavy liing wih respec o regulaion wriing and implemenaion o he Securiiesand Exchange Commission (SEC) and oher agen-cies. Dodd-Frank required he SEC o promulgaehundreds o rules and conduc numerous sudies. odae, he SEC has compleed abou hal he required

rules. Indeed, here are sill a ew ousanding sudiesha he SEC needs o conduc and repor back on o Congress, he resuls o which,undoubedly, will be urher rule-making.

ule-making by he SEC can be long and arduous. Te SEC mus rs dra a seo proposed rules, which are hen published or public commenary. Te SEC mushen comprehensively review he commens and respond o hem in a meaningul man-ner. Tis akes ime and resources o complee, which explains why rules are sill beingenaced wo years aer he Acs passage. Consider or example, he simple quesiono wheher uniorm duciary duies should be imposed upon invesmen advisers andbroker-dealers. Dodd-Frank did no answer his quesion, bu gave he SEC he ask

o conducing a sudy ino wheher such a duy should be imposed. Te SEC soliciedcommens prior o conducing he sudy, and received over 3,500 leters, many o which

were lenghy and deailed. Aer receiving he commens, he SEC issued a 166-pagesudy wih over 700 oonoes and wo appendices, recommending ha he answer be

yes. A presen, he SEC is examining he quesion ohow o implemen his simple answer wih enorce-able rules.

The SEC has completed about hal

the required rules.

Rule-making by the SEC can be long

and arduous.


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he impac o Dodd-Frank andis accompanying regulaions on he

American nancial sysem is highly uncer-ain, and in ac, uncerainy seems o be

he only cerain impac. Te impac oDodd-Frank on Canadas nancial sysemis even more uncerain. Te reason is wo-old. Firs, some speciic provisions oDodd-Frank deal wih oreign banks, bumany o he rules have ye o be developed

by he Federal eserve Board. Second,here are oher rules ha may apply inad-

verenly o Canadian companies hahappen o be doing business in he Unied Saes, such as brokerage rms ha rade

American socks or cliens eiher in he Unied Saes or Canada.Canadian companies cross-lised on American sock exchanges will be subjec o

he Dodd-Fr

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The US election 2012: Implications for Canada

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