Economist 7/8/16

  1. MORE than seven months after the affable leader of Canada’s Liberal Party, Justin Trudeau, became prime minister, there is no sign of an end to his political honeymoon.Mr Trudeau is the preferred prime minister of more than 50% of Canadians, compared with 35% at election time.When his finance minister, Bill Morneau, handed down the new government’s first budget in April, the size of the federal deficit for 2016/17 was almost C$30bn, or nearly as much as Mr Trudeau had promised over four years. Yet it found favour with international organisations. In its most recent assessment, the IMF said it “welcomes” the additional spending; high praise from such a prosaic organisation. Other economists joined in: Paul Krugman described the plans as “truly responsible fiscal policy”.
  2. What the Canadian government is doing is little more than common sense. A big exporter of oil, Canada is suffering a slump in investment thanks to low oil prices. Its economy needs a boost and, at a time of extraordinarily cheap credit, the government is borrowing more in order to support growth. Since the financial crisis, developed economies have insisted on running tight fiscal policy to reduce debt while relying on very low interest rates to stimulate demand. So far, that strategy has been no more than a qualified success. Growth has been moderate and demand has not picked up sufficiently to lift interest rates from the floor.Canada is in a better position than almost any other rich country to take advantage of low rates: it didn’t suffer a big downturn after the financial crisis, and it has a history of fiscal restraint.
  3. BEFORE the late 1990s China barely had a middle class. In 2000, 5m households made between $11,500 and $43,000 a year in current dollars; today 225m do. By 2020 the ranks of the Chinese middle class may well outnumber Europeans.In other authoritarian countries that grew rich, the new middle classes demanded political change. In South Korea student-led protests in the 1980s helped end military rule. In Taiwan in the 1990s middle-class demands for democracy led an authoritarian government to allow free elections.Few middle-class Chinese people say they want democracy, and not just because speaking up might get them into trouble. Many look at the chaos that followed the Arab spring, and recoil. Some see Britain’s decision to leave the European Union as a sign that ordinary voters cannot be trusted to resolve complex political questions.
  4. Scratch the surface, however, and China’s middle class is far from content. They worry about who will look after them when they grow old; most couples have only one child, and the public safety-net is rudimentary. They fret that, if they fall ill, hospital bills may wipe out their wealth. If they own a home, as 80% of them do, they fear losing it; property rights in China can be overturned at the whim of a greedy official. They worry about their savings, too; banks offer derisory interest rates and alternative investments are regulated badly or not at all. Many middle-class Chinese are also angry. Plenty scoff when they are force-fed Marxism. Even more rage about corruption, which blights every industry and activity, and about nepotism, which rewards connections over talent and hard work. China’s vast state-security apparatus moves quickly to crush unrest. Yet to rely on repression alone would be a mistake. China’s middle class will grow and so, too, will its demands for change.
  5. The scale of the tree loss in America is staggering. Last year over 10m of America’s 766m acres of forest were consumed by wildfires, sparked by lawn mowers, campers or lightning (see chart). This was the biggest area burned since 1960, when records began, despite a firefighting effort that involved over 30,000 people and cost the federal government over $2 billion.This year’s fire season was expected to be less severe.Yet it is running at par with the average of the past ten years, which include the five worst years on record. In the year to July 1st, 2.1m acres of America were razed by nearly 26,000 fires; 19 large ones are currently blazing, mainly in the West. Siberia, Tasmania, Canada and Indonesia have seen record-breaking fires in recent years. According to Greenpeace, fire consumed over 7m acres of Russian forest in the year to May 23rd.

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