Tuesday, 15 November 2011

The Semantics of Canadian Bailouts

Economists - perhaps more than any other discipline - maintain a unique capacity to operate in a hermetic bubble, safe from the outside world. They exercise an uncanny ability to thrive in jargon, abstract concepts and mathematical formulas, most of which collapse when they intersect with reality. At the same time they remain cocksure and arrogant, convinced of their own intellectual superiority while deriding 'lay persons' as uninformed and wholly unqualified to speak. Economics is a science, they say, an area which requires a particular expertise and skill.  They - the knowledgeable few chosen from among the many - retain a monopoly on truth and only they may make pronouncements on such matters. The economy is their domain. It should be isolated from politics to allow it to fully function and reach equilibrium. The point that economics and politics can never be separated, or that their formulas have human externalities, is beside the point. The bottom line is that, consistently and without fail, economists are dead wrong. They lack both predictive and analytic certainly.

This would all be fine if economists remained in their ivory towers, exchanging ideas between each other, going about their business without external interactions. They, of course, do not. Economists love to be in the kitchens of power as much as any other 'expert'. The dangers of this are well documented. My concern, however, is what happens when economists attempt to colonize other disciplines or facets of life such as the English language itself.

Take for instance the term 'bailout' a word now redefined by economists, notably Laval economist Stephen Gordon, who has taken to Twitter to set the record straight that there were no auto industry bailouts in Canada. As he put it, "It was a 'bailout' in the sense that when I go grocery shopping, I'm 'bailing out' Loblaws." Sarcasm seems to be the first line of defense of economists, who, when truth smacks them in the face, turns to snark to dismiss their foes.

Anyway, it's worth noting the definition of 'Bailout' as laypersons understand it:



the act of parachuting from an aircraft, especially to escapea crash, fire, etc.
an instance of coming to the rescue, especially financially: agovernment bailout of a large company.
an alternative, additional choice, or the like: If the highway isjammed, you have two side roads as bailouts.

of, pertaining to, or consisting of means for relieving anemergency situation: bailout measures for hard-pressedsmallbusinesses.

Bluntly put, the Loblaws example is entirely disingenuous and not in any way analogousness. The auto crisis and subsequent bailout happen to be well documented in the public record and in non-economic English. In non-economic English the standard definition fits. There was a crisis, the industry faced collapse, Ottawa and Queen's Park ponied up the cash to keep the sector a float. A bailout, pure and simple. Cash from a lender of last resort to keep a business afloat. It's similar to the situation faced by states (Greece, for example). When banks will no longer finance an operation, a lender of last resort - say Germany or the IMF, which is the international lender of last resort - step in to provide what the banks are unwilling to. The auto crisis seems to fit this bill.

Wrong, says the economist from Laval. Why? Because Canadian taxpayers made money in the end. Bailouts, taken as an extreme, require public money to be lost entirely without possibility of recuperation. It's not the motive, but the end result. The fact that the action was taken to ward off industry - and ultimately systemic - collapse is inconsequential because of the outcome. Even though the funds were posited solely for this purpose - recall governments claiming no interest in owning a car company - the fact that dividends were acquired retroactively turns these taxpayer funded  bailouts into 'investments'. The logical leaps here are astounding. If governments had no interest in investing in car companies, why would they suddenly decide to infuse money into a failing industry at this moment? It would not  have been deemed a sound investment.

The semantic gymnastics economists jump through require great feats of incredulous redefining of common terms. It's a mere obfuscation of the reality. Taxpayer money was funneled in to companies without guarantee of having that money returned, with or without dividends. Taxpayers assumed a risk the market would not bear in order to keep several huge multinationals afloat. That's not investment, that's a bailout. Economists would do well to leave things they don't understand, like the English language, to those with expertise in the area and stop defining concepts to fit their oft derided theories. 

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