Monday, December 9, 2013

A United States of North America?

The trouble with long-term economic forecasts is that they are inevitably wrong, both on direction and often on degree.  The recent past weighs too heavily on our horizons, and we can't imagine these recent trends ever stalling or reversing.  I don't speak about this only through observation, but from my own experience at the controls of forecasting models that spewed out some laughable results.

Europe would soon supplant the United States as a global economic power given that its unified markets were almost as large as that of the United States. Well, maybe that needs to be revised.  Japan will dominate global economics because we taught them all about manufacturing quality, and because their single minded management and skilled labor force would take them to world domination.  When they bought Rockefeller Center, that surely had to symbolize the end of our economic hegemony.  This globally consensus forecast has to take the prize for forecasts we'd like to disavow.

China will corner the market on manufacturing, as it moves upstream to capture high tech industries.  Its currency will supplant the U.S. dollar as the preferred global vehicle for trade.  Its double digit GDP growth into the foreseeable future will allow it to capture global stocks and capacity for materials from energy to rare earth minerals.  This forecast is already being nuanced away, and it will have some more trimming of the sails in the future.

In all forecasts of this ilk, U.S. is the inevitable loser. The reasons are all over the map, reflecting our vapid body politic: self-loathing, nostalgia, multiculturalism, right wing conspiracies, profligate spending, under investment by the government, the Tea Party and so on ad infinitum.

A recent, tongue-in-cheek story in the Wall Street Journal talked about a merger of the U.S. and Canada.
There's a kernel of an idea here, but I'd make it even bigger.  I'd propose a United States of North America. I recognize that the name itself would need marketing and political negotiations, but I would include a continuous market that would include the U.S., Canada and Mexico.

Having written about the problems with the European Union, of course this sounds outlandish, and it is.  The biggest barriers are the political and economic rent-seekers whose interests would be gored by a change in the status quo.  However, this is exactly the phenomenon of a genuinely different future vision being weighed down by the baggage of recent history.

The case for Canada's participation in such a venture is obvious.  A country with a population of 35 million people is one-tenth or less the size of the U.S. population.

Figure 36 Population of the Canadian provinces and territories in 2006 and 2031
Most of Canada's population is concentrated in two provinces in close proximity to the United States in a belt from Quebec to Windsor.  Statistics Canada's presentation of future population scenarios shows the continued concentration of the population in southern Canada, with some growth in the Canadian agricultural centers of Western Canada.

Canada is our biggest trading partner, by far.  Census numbers show year-to-date through October the value of trade with Canada amounting to $209 billion.  Mexico, on a year-to-date basis, is third at $164 billion, just behind China at $167 billion.

The opportunities for almost unimaginable social and economic gains from really freer economic markets are right in front of our eyes.  This whole economic region could be energy independent several times over, but that's the low hanging fruit.  Canada has land and mineral resources that are underpopulated and underdeveloped respectively.  Mexico has finally begun to state, at least for the press, that its bloated, ineffective public oil monopoly PEMEX needs technical help to develop its energy resources.  Socially, its government needs to get a handle on its myriad social and political issues.

Capital abounds in all three countries, looking for investment in a regime of stable markets and a well developed legal system.  The Canadian banking system is much smaller than ours, but more conservative and looking for expansion opportunities in U.S. markets.

Beyond tongue-in-cheek, there's a real opportunity in what looks like a "1% scenario."  Instead of talking about a solar future, some of our think tanks ought to be turning their attention to a United States of North America.  ¿qué peinsa usted?

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