Crawl Across the Ocean

Monday, February 28, 2005

A Short Walk in the Mud

I have to admit I was a bit puzzled by Conservative Party leader Stephen Harper's reaction to the budget last week, and I thought that Warren Kinsella was rightly critical of his performance (in his feb 24 post). More generally, ever since the last election, I haven't really gotten the feeling that Harper's heart is really in the battle to form the next government.

Despite widespread fatigue with Liberal government, the ongoing sponsorship scandal, the humourous yet disturbing mismanagement of the Missile Defence file, the inability to actually come up with a plan on Kyoto and the media predictably going straight from their 'Martin can do no wrong' storyline to their 'Martin can do no right' storyline, the Conservative party is failing to make much of an impact with voters and are still polling below the combined vote of the Progressive Conservative and Reform parties back when they were still separate parties.

Rather than focusing on reducing Federal intrusion in Provincial affairs and putting tax cuts ahead of spending, the Conservatives seem to be bogged down in an attempt to convince minority voters to vote for them because they are willing (just in this one case?) to deny rights to one particular minority the other minorities don't like.

But besides all this, there's times when I see Harper in a scrum with reporters and he just has this look in this eye, and I can't help but feel that he's thinking, "If these dumbass journalists ask one more ignorant question which shows how little they know what their talking about, I'm going to make what Chrétien did to that protester look like a friendly greeting." Not that I don't sympathize sometimes, but that kind of thing comes with the territory, being a leader of a federal party and all.

And it's not just me thinking this and wondering, "Has anyone seen Stephen Harper?"

You put it all together, and I wouldn't be surprised to see Harper take a short walk in the mud1 some time in the next year or two and announce that he is stepping down as leader of the Conservative party.

Which brings me to the reason I started writing this post in the first place, to speculate on a potential replacement for Harper. Now, Calgary Grit has a good post up handicapping potential replacements for liberal leader Paul Martin, but I thought that, rather than start with the prominent people, I would start with the qualities necessary for the job, and see if it brought anyone to mind. This way we won't be limiting ourselves to the obvious choices.

So what qualities would a good Conservative party leader have? (I'm trying to see this from the perspective of the typical Conservative voter which may be a bit of a stretch, but I'll do my best)

1. Ambition: One of the biggest problems with Harper's leadership has been the sense that he doesn't have the drive to do what's necessary to make the Conservatives into a party which can take power. A new leader would have to be someone who has shown a clear desire to set Canadian policy and to have clear ideas on what that policy should be - i.e. someone who really wants to run the country.

2. Improve relations with the U.S.: Given our strong economic and political ties with the Americans, it is essential that the new leader avoid getting dad angryimprove relations with our supremely powerful neighbours.

3. Proven dedication to Conservative priorities: For example, tax cuts and military spending (and not being happy with a budget which puts these off for years).

4. High Profile: While a party can succeed with a relative unknown at the helm, it would be advantageous to have someone already familiar to Canadians, especially to help with the trust factor which the Conservatives are struggling with.

So who fits these criteria? Stronach? Mackay? Lord? No, the answer is clearly: Paul Cellucci.

The timing is perfect since Cellucci is just coming to the end of his term as American ambassador to Canada. True, Cellucci is said to have a lucrative private gig set up but do we really think that the offer to become Prime Minister of Canada wouldn't lure him back into politics? If any public figure has shown an ambition to set Canadian policy over the last few years it has been Cellucci. Whether issuing vague warnings about our drug policies or rhetorically styling himself as the arbiter of Canadian sovereignty, he's probably made more headlines criticizing the government's actions than Harper has and Harper is the leader of the official opposition.

As for improving relations with the U.S., what could be better than having their former ambassador to us as our PM? Who could do a better job crafting Canadian policy to meet with the approval of the Bush administration than a man specifically appointed by them to manage our country?

In a similar vein, who could doubt the commitment to tax cuts and military spending of someone appointed by George Bush? And he not only has a significant public profile here in Canada, he's reasonably well known in the U.S. as well.

As an added bonus, Conservatives already like to dismiss any criticism of their policies as just being knee jerk anti-Americanism and that argument would be that much more effective with Cellucci officially running the party.

And finally, think of it from Cellucci's perspective. Is there a more time-honoured path to taking over the reins of an empire than by successfully running one of its outer provinces? I think not.

Sure, there may be some technical issues (e.g. citizenship) to overcome, but from where I stand it's all coming together for Cellucci in 2006.

1 Given 20 years of global warming and the difference in political tenure between Trudeau and Harper, I figure a long walk in the snow translates into a short walk in the mud.

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Sunday, February 27, 2005

Budget - Final Word(s)

OK, last post on the budget, I promise. I just wanted to wrap up a few loose ends.

First, I have so far failed to mention that the restriction on investing pension and RRSP funds in foreign countries (max: 30%) was totally lifted. Doesn't really affect me since I think my RRSP is 100% Canadian at the moment (am I going to invest in the U.S. with their currency situation? - and what do I know about conditions in Europe or Asia?) but I guess there are some business types out there who were chomping at the bit to get more of their money out of the country (diversify, in their minds).

It's probably more of a benefit for the larger pension plans who may have enough to invest that they are legitimately a little short on options sometimes in Canada, especially if they don't want to invest all the pensioners money in financial stocks and resources (not that that's been a bad plan over the last few years).

Politically, it seemed a little strange to me. I didn't think there was a whole lot of pressure to lift the limit (not entirely anyway) and it seems like encouraging (forcing) domestic investment of the money has been a good way to make sure adequate capital is available to Canadian companies (thus supporting the all-important productivity gains which the government is always chasing). Perhaps it's felt that our markets are 'mature' enough now that this support is no longer necessary, but I would have been more inclined to lift the limit to 50% first and see what happens. Seems like the kind of thing where it would be hard to go back.

Second, in reading other people's takes on the budget, I see that most (all?) are a lot more skeptical than I am about the later years of the budget plan ever actually being implemented. Where I feared that the distant plans actually would be implemented, most derided the government for even making such unlikely to be implemented plans. I guess we'll see how things go over the next few years.

Finally, if you're interested in what's on the mind of people in the finance department (and I'm sure that's what was on your mind before reading this post), the annexes to the budget make interesting reading. In particular, Annex 2: 'Canada's Financial Performance in an International Context' makes cheery reading for a fiscally conservative (should we change this phrase to 'fiscally un-conservative' someday to reflect the debt accumulating work of Harris, Reagan, Campbell and now Bush Jr.?) Canadian. The graph on program spending is instructive for those in a panic about the spending increases since 2000 (for those too lazy to go look, it basically shows that Canadian program spending as a % of GDP (for all levels of government combined) has dropped from one of the highest in the G7 as at 1992 to one of the lowest as at 2004).

Annex 3: Canada's Demographic Challenge has a fascinating series of stats and charts on the likely impacts of the demographic shifts coming in the next few decades. Among other things it shows that Canada is likely to face a bigger more sudden shift in it's demographics than most other countries (except Japan).

And Annex 4: A Framework for Evaluation of Environmental Tax Proposals is an interesting overview of the logic behind when and how it makes sense for the government to intervene in the economy in general and with regard to the environment specifically.

"In practice, perfect market conditions do not always hold. In some cases, the supplier does not bear all of the costs of production: other costs, called "negative externalities," are borne by other parts of society. Market prices then understate actual costs, and production and consumption levels are too high from the perspective of society. In other cases, producers or consumers may not capture all of the benefits of certain goods or services and "positive externalities" may accrue to other producers or consumers, or to future generations. Market prices are then above socially optimal levels, and production or consumption levels correspondingly are too low.

The presence of externalities, or other "market failures" such as lack of information in the hands of decision makers, generally underpins the case for government intervention. Under certain conditions, government may be able to correct for such market failures by implementing financial incentives or disincentives that establish improved price signals. Supply and demand may then respond in a manner that satisfies both private and broader public interests. If well designed, the intervention leverages the capacity of the marketplace to adjust, to innovate, and to minimize the cost of achieving defined public policy goals"

Overall, it's a good read and seems like a basis for sound policy development (in my book, anyway). It's just too bad that a lot of the policies the government actually implements (especially with respect to the environment) seem to have been designed by people who haven't read this document. Sigh.

Note: This annex kind of reminded me of this summary of the logic behind government intervention in the economy, only this time in the context of the U.S. considering the government's role in child care.

Well that's it for this topic. If you're lucky, next year I'll be jaded enough that I'll just post something like, 'Budget 2006 - Same old, same old'

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Friday, February 25, 2005

Who Am I?

I'm a Mandarin!

You're an intellectual, and you've worked hard to get where you are now. You're a strong believer in education, and you think many of the world's problems could be solved if people were more informed and more rational. You have no tolerance for sloppy or lazy thinking. It frustrates you when people who are ignorant or dishonest rise to positions of power. You believe that people can make a difference in the world, and you're determined to try.

Talent: 37%
Lifer: 41%
Mandarin: 74%

Take the Talent, Lifer, or Mandarin quiz.


Wow what a shocker that was :)

Via Bound by Gravity

Paul Wells (who probably started this) has some interesting background on the guy who developed this test as well.

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Thursday, February 24, 2005

The Budget - Part 2

My general take on the budget was in part 1. This post is basically a list of all the spending / tax cut initiatives in the budget along with my opinion on them (where I have one).

The format is: Initiative Title / Amount this year / Amount in 2005-2006 / Amount in 2006-2007 / Amount in 2008-2009 / Amount in 2009-2010 / 2 year total (this year + 05/06 + 06/07) / 5 year total (from this year out until 09/10). It's in (roughly) descending order of size based on the 2 year total and all figures are in billions of dollars and rounded off to the nearest $100 million. Let me know if you see any errors.

Note that the two biggest items, health care and the new equalization framework had already been included in the fall update last November, so they're not really new as of the budget).

(yeah, I know, I should put it in a table, but I'm lazy, what can you do? -
Update: Andrew at Bound by Gravity has created some charts which do a great job of capturing the figures which follow.

Health Care deal: $5.8 / $2.6 / $2.4 / $2.3 / $2.6 / $3.2 / 2 yrs: $10.8B / 5 yrs: $18.9

I guess if the provinces are too chicken to raise their own taxes to pay for their health system properly, they have no right to complain about federal intrusion on their jurisdiction.

Equalization Framework: $1.5 / $1.6 / $2.0 / $2.5 / $3.0 / $3.5 / 2 yrs: $5.1 / 5 yrs: $14

If there's one file that could turn into a huge mess in the next few years, it's probably this one. I don't mind equalization too much, I guess it's fair compensation for poorer regions getting saddled with a currency which is kept at a level too high for them to compete at, thanks to the efforts of economically stronger regions.

Child Care plan: $0.2 / $0.5 / $0.7 / $1.2 / $1.2 / $1.2 / 2 yrs: $1.4 / 5 yrs: $5

I would put increased spending on early child care and education at the top of my priority list. The discrepancy between what we spend on university vs. the first few years of people's lives (when they can learn so much more) is pretty hard to justify. Still, the question of how to go about spending money in a fair and effective manner is quite a tricky one. I don't envy Ken Dryden, but hopefully at least some of this money ends up translating into higher quality care (whether private, public of family given) for our young children.

Gas Tax Money for CitiesCommunities: $0 / $0.6 / $0.6 / $0.8 / $1.0 / $2.0 / 2 yrs: $1.2 / 5 yrs: $5

Note that the Federal government isn't actually giving the cities the right to collect tax on gas (or even collecting the tax on their behalf) - they are giving the cities an amount of money roughly equivalent to 5 cents worth of gas tax - well they are planning to in 2009-2010 anyway. Municipalities really need some added taxation power of their own and gas taxes would be a logical place to start.

Strengthening National Defense: $0 / $0.5 / $0.6 / $1.1 / $2.1 / $2.7 / 2 yrs: $1.1 / 5 yrs: $7

While I'm not a huge fan of spending a ton of money on the military, I think that more money was needed at this point so this seems reasonable. What puzzles me is this:
"[the budget] provides Canada's military with $7 billion in new budgetary funding over the next five years, which will support $12.8 billion in additional expenditures by the Forces in that period. ... In the budgetary funding estimates shown in the summary table at the end of this chapter, the actual cost of the capital is spread over its life, and the annual budgetary amounts include only a fraction of the full capital cost. However, DND will have to pay the full costs of the capital in cash in the years that it is acquired. The Government will make that cash available to DND as it is needed."

So there is $7 billion in the budget, but there's an extra $5.8 billion that the government will 'make available' to the DND. I need to study government some more, I thought the purpose of a budget was to identify cash that the government was going to make available.

Investing Everywhere Except Southern Ontario in Regions and Sectors: $0.1 / $0.4 / $0.4 / $0.4 / $0.4 / $0.4 / 2 yrs: $0.9 / 5 yrs: $1.7

Maybe it's the born and raised southern Ontarian in me but this extra $0.4 a year for a motley collection of government pork projects (with some worthwhile ones mixed in) is probably the most offensive part of the budget to me.

Among the various recipients of funds here are: "provision of an additional $50 million in funding to the Textiles Production Efficiency Component of the Canadian Apparel and Textile Industry Program" and "new funding of $73.5 million in the next five years. With this funding, WD [Western Economic Diversification Canada] will launch a new Partnerships for Community Action initiative to work with communities vulnerable to economic adjustment pressures and with Western cities, such as Vancouver, Regina and Winnipeg, on their specific economic issues, and support other Western Canadian priorities. As well, WD will be provided with $18.2 million over five years to increase its contribution to Community Futures Development Corporations throughout Western Canada."

Here's the deal, we already have one equalization program, we don't need two. If it was up to me, I'd take the next 3 years budget for all these regional programs, use them to capitalize a venture capital firm for each region, appoint a board of directors from that region, give a share to everyone from that region and launch publicly traded venture capital firms in every region of the country. These organizations would be controlled by their shareholders who would (initially) be the residents of those regions. If they wanted to use the funds to invest in their region, fine and if they wanted to invest in China, so be it.

Anyway, I'm not saying that these programs don't do (some) good work, just that the money could be put to use more efficiently outside of these bureaucratic government programs.

Tax Cuts: $0 / $0.2 / $0.6 / $1.1 / $4.3 / $6.6 / 2 yrs: $0.8 / 5 yrs: $12.8

Increases to the basic personal exemption are welcome and in my view one of the most sensible ways to reduce taxes. For one thing, just about everybody gets the same benefit and for another, it saves a large number of people from paying a small amount of taxes each, thus saving both their time and the government's time. It's just too bad the amount won't make a significant move until 2008-2009 (not that I can see anyone forming a government and rescinding this measure, so it's just a question of when, not if, we'll get this tax cut.)

Meanwhile, Canada keeps running to keep up with all the other countries who are racing to see who can cut corporate taxes to 0 first, although we are mainly just trying to stay ahead of the U.S. by reducing the [federal] corporate tax rate from 21% to 19% starting in 2008 with the surtax disappearing in 2008 as well. Hopefully that was the last federal surtax left, since in my view surtaxes are just an unnecessary complication of the tax system. Tax rates for corporations above a certain size are crying out for an international agreement to stop this ongoing round of countries competing against each other to lure globally mobile corporations to their door. But I'm not holding my breath.

Canadian Heritage: $0 / $0.4 / $0.3 / $0.3 / $0.3 / $0.3 / 2 yrs: $0.7 / 5 yrs: $1.6

The (almost) majority of this ($0.7 over five years) money goes to something called the 'the Tomorrow Starts Today art and culture package' while another $0.2 (over 5 years) goes to 'help Canadian diversity find its voice in communities across the country'. I appreciate that government has a role to play in supporting culture which is non-commercial in nature but sometimes I think the Liberals come up with names for this stuff which are basically designed to thumb their noses at Conservative types and say hey look over here, we're spending money on this and you can't stop us - nah nah na nah nah.

There's also an extra $0.35 (over 5 years) for Sport Canada which doubles its budget. The rational part of my brain figures it may be silly to double our budget for amateur athletics but the irrational part of my brain wants the country to kick butt at the 2010 Olympics in Vancouver and is happy to see this.

Sustainable Environment: $0.3 / $0.1 / $0.1 / $0.3 / $0.8 / $1.0 / 2 yrs: $0.5 / 5 yrs: $2.6

And you thought the military spending was backloaded! (Note: I excluded amounts included in previous budgets - $2.2 which is now being planned to be spent in the next few years).

This funding is very widely scattered. The biggest item is the 'Clean Fund' which gets small change for the next 2 years and then roughly $0.3/year starting in 2007-2008. From the description it sounds like a (hybrid) vehicle through which the government will pay people to reduce their emissions. e.g. I undertake an action to reduce my emissions by 5 tonnes and the clean fund gives me $20/tonne or $100 (pulling numbers out of the air here). While the idea is interesting, I would have preferred a less bureaucratic approach, along the lines of the Wind Power Production Initiative which gets just $0.2 total over five years added to it's budget.

What's interesting is that the government seems to be moving in the direction of using the tax system more actively to encourage emission reductions. Whether they'll ever get beyond their current tentative steps such as giving renewable energy projects the same beneficial tax treatment as fossil fuels get remains to be seen.

Seniors (GIS Increases): $0 / $0.1 / $0.4 / $0.7 / $0.7 / $0.7 / 2 yrs: $0.5 / 5 yrs: $2.6

Maybe I'm cold, but I hope we don't regret this in 15 years.

Anyway, there's lots (and lots and lots) more but I think I've covered the biggest spending items - let me know if I missed anything.

If I'm not sick of the budget, I may do a part 3 on the annexes (scroll down) which the government publishes with the budget and which, to a policy geek like myself, make for pretty interesting reading.

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The Budget: Part 1

I was going to title this post, "$13 Billion for the Military!!!!!!!" but I somehow resisted the urge. So, the budget. First off, the relevant documents (i.e. the budget) can be found here.

There's lots of documents there so I recommend this summary as a good starting place. For some context, I recommend reading last year's summary as well.

2005 vs. 2004

Comparing last year's budget to this year's, I see two main differences:

1) The 2005 budget has a similar number of expenditures, but the numbers are a lot bigger - i.e. it is a much heavier spending budget. The 2004 budget contained $3.6B (combined tax reductions/new spending) for 2003-2004, $2.2B for 2004-2005 and $2.5B for 2005-2006.

This year's budget contains $10.8B (again combined tax cuts and spending) for 2004-2005, $7.4B for 2005-2006 and $8.8B for 2006-2007 (note: this includes both spending / tax cuts announced yesterday and the results of the health summit and the equalization deals with Nova Scotia and Newfoundland).

2) The 2005 budget is a five year plan while the 2004 was only a two year plan.

While the 2005 budget has $7.4B for the upcoming year and $8.8B for the year after, it also has $11.1B for 2007-2008, $16.3B for 2008-2009 and $21.1B for 2009-2010.

General Impressions

If you read this blog regularly at all, you'll know that I would have preferred a larger commitment to debt repayment but under the circumstances, retention of the $3 billion contingency fund to be allocated to the debt (if it's not needed), combined with continued conservative revenue forecasts1 by the government is probably the best that could be hoped for on this front.

In terms of the spending and tax cuts, most of what was offerred generally made sense, but there were certainly lots of items on the spending side that I'm skeptical about (more on that in part 2). Also, while I like the idea of cutting taxes by raising the basic minimum amount rather than cutting the rates in the actual tax brackets, I would have preferred to see the timing profile of the tax cut to be the same as the spending profile. To be clearer, tax cuts only take effect starting in 4 years whereas spending starts now. Personally, I feel that the biggest expenditures needed in Canada right now (education, health and infrastructure) are all primarily non-Federal areas of responsibility so it makes sense for the Federal government to continue scaling back it's role in the economy to make room for more taxes to be collected at the provincial /municipal level.

My biggest concern however, is that it is a...

Sneaky Budget

Why sneaky? Because of the shift from a 2 year horizon, to a 5 year horizon. Given the media's propensity to report budget items using as few numbers as possible, this allows the government to present spending totals which appear 2.5 (5/2) times as big as would normally be reported for a budget.

Take a random $1B/year expenditure - under the old budget rules it would have been $2B - now all of a sudden it's $5B.

Or consider tax cuts. Using a two year horizon, this budget contains basically no tax cuts. Next year's budget? Same thing. Not until 2007 would the tax cuts show up (in the second year of that budget). So the shift from 2 years to 5 years magically allows the government to announce tax cuts where there aren't any (at least not under the old planning rules).

The reason I think this trickery is dangerous rather than just irritating is because what do you suppose will happen next year? Can next year's budget afford to increase spending / reduce taxes in 2009-2010 by another $21.1B. And if so, what about the 2007 budget and the 2008 budget?

To put it another way, this budget contains on average a $13B increase in spending / tax cuts for each of the next 5 years. If every budget were to do that, it would add up to an extra $65B for each year. And if, on top of that, we keep spending $10.9B more than we budgeted like we did this year, well you can see that this kind of thing isn't sustainable over the long haul.

For now, federal spending is fairly low compared to post WWII norms so it doesn't bother me too much to see funding restored to a number of areas such as the military but I worry that 5 year plans as opposed to 2 year plans will build in a tendency for government to over-commit its resources as we move forward.

In order for a series of 5 year commitments to add up to the same total as a series of 2 year commitments they have to be only 2/5 (40%) the size (per year). But as I mentioned earlier, the new funds per year is much higher in this budget than the last one, so it's a bit of a double whammy.

So overall, I would have preferred more debt repayment as well as more targeted (read: smaller/fewer) spending increases in certain areas. Also, the tax cuts, while well designed, should start sooner, and most importantly, the shift from a 2 year horizon to a five year horizon is both sneaky and, in the long term, likely to do more harm than good. Still, it could have been worse.

Part 2 will look at (and give opinions on the worthiness of) the various individual spending items.

1 The budget says that, "The federal revenue-to-GDP ratio is projected to decline from 15.3 per cent in 2003-04 to 14.5 per cent by 2009-10, reflecting one-time revenue gains last year as well as the impact of the tax reduction measures announced in this and previous budgets."

I'm not really sure what one-time revenue gains they're talking about - sure they sold their remaining shares of Petro-Canada but I can't see how that accounted for more than 0.1% of GDP worth of revenue. Also, by my understanding, any tax cuts to take effect for next year are fairly small.

I'm sure lots of people will (many already have) say that this is just more Liberal lowballing to leave room in future budgets for new announcements and that may be true, but, having worked in government on a few occasions I suspect that somewhere in the Finance department there is a financial model which forecasts these things and this model probably expects that when taxes are cut that gov't revenue as a % of GDP should decline and isn't adjusted when that fails to happen (as it did this year).

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Wednesday, February 23, 2005

Budget Day

Just a quick thought in anticipation of a flurry of budget reporting starting later today.

Could we please be spared reporting of $x billion for the military, $y billion for tax cuts and $z billion for the environment, only to read the fine print and see that the $x billion for the military is over 12 years and dependent on the results of some policy review, and the $y billion for tax cuts is over 5 years and is partly just the continuation of previously announced tax reductions, while the $z billion for the environment is over 4 years and half of it is money allocated in previous budgets which hasn't been spent yet?

Some rules:

1) How much per year?
2) For how many years?
3) How much is new money?
4) Is the money allocated for sure or conditionally?

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Sunday, February 20, 2005

Government is not a Business - Part 2

Last week, Ellen Russell from The Canadian Centre for Policy Alternatives (sort of a well organized, high profile, left leaning group blog which specializes in really long posts1) came out with a report with the reassuringly straightforward title of, "What Should We Do With the Federal Budget Surplus".

Carol Goar had an approving take on the report in the Star, and Andrew, at Bound by Gravity, [partly] agreed [Update: Just to clarify, while Andrew agreed with not making debt repayment our top prioirty he preferred to get rid of the surplus via tax cuts not via new spending] (warning: I wrote a long comment on this topic at Andrew's site so if you've already read that discussion, this will be a little redundant).

Now if you know anything about the Centre for Policy Alternatives you don't need to read the report to guess what they think we should do with the surplus (increase spending to fight poverty, build infrastructure and so on). But what I found interesting was three of the arguments put forth to justify spending vs. paying down the debt: The demographic argument, the intergenerational fairness argument and the return on investment argument.

The demographic argument Russell makes is that,
"The budgetary implications of our aging population are not necessarily as ominous as Canadians have been led to believe. ... There is considerable evidence to suggest that deferred tax payments on the more that $1 trillion held in registered pension plans and RRSPs can nicely offset the health care costs,as well as the Old Age Security,Guaranteed Income Supplement,and Spousal Allowance costs associated with an aging population."

Furthermore, she also suggests that if we want to prepare for an aging population we should be spending money on expanding nursing care and so on now, so as to be ready when the boomers retire. (although at the end of the survey when the time comes to say what the government should spend it's surplus on, these expenditures are not mentioned, at least not that I can see).

What Russell fails to address is the real demographic problem which is not that we're going to need more hospitals for all the old people, it's that once those boomers all start trying to withdraw their trillion dollars at the same time, there's a really good chance it will drive up interest rates (note: interest rates are largely a measure of the demand for money. Once boomers retire they will no longer be supplying money to the financial markets, they'll be demanding it back - thus leading to a likely increase in interest rates.)

Holding ~$500 billion in debt as we do currently, every 1% rise in interest rates puts a $5 billion hole in our budget. i.e. we are very vulnerable to a large interest rate shift. If we were to get hit with an economic mess like we got hit with in the 70's, but starting from this debt position, well, it doesn't bear thinking about.

Given that rates are near all time lows and demographics are pointing to an increase, the time to lower our debt (and pay down your mortgage) is now.

The second argument is the inter-generational fairness issue. Russell says,
"Using budget surpluses to repay debt is a highly dubious gesture of inter-generational fairness if today's children are neglected in order to lighten the load of future taxpayers."

But today's children and future taxpayers are the same people - the fairness issue has nothing to do with them. The fairness issue is about all the people who benefited from piling up the debt who will soon be leaving the workforce and will no longer be in a position to repay their debt before it passes on to their children. And the fact that controlling spending to pay down the debt affects all members of society, including children, doesn't mean that the children of future generations should have to pay interest on $500 billion of debt that we piled up and never paid down.

The final, most important and most dangerous argument is the 'return on investment' argument. Here is what Russell argues,
"When budget surpluses are used to pay down debt,it means that this money is not available to fund other priorities. Arguably, the benefits of the alternative uses of budget surplus dollars outweigh the savings in debt service charges produced by debt repayment. For example,government spending that enhances labour force skills contributes to economic growth,which has a host of benefits (including improving the debt/GDP ratio).

The possible benefits of funding other priorities in lieu of debt repayment can be illustrated by a number of studies. A 2003 paper prepared for the Panel on the Role of Government in Ontario concluded that the social benefits of higher education provide a real rate of return to society in the range of 7% to 10%.

The Association of Colleges of Applied Arts and Technology of Ontario released a study in January 2004 finding that public investments in Ontario colleges repay the taxpayer at an annual rate of 12.7%,counting the additional earnings of college graduates as well as improved health,reduced welfare, unemployment and crime. The provision of high-quality child care provides a high social rate of return: using relatively cautious assumptions, a recent study found that every dollar spent on comprehensive public child care programs produces about $2 worth of benefits for children and their parents."

To be fair, she does note that these rates of return are not strictly comparable with the 5.5% interest rate on the debt but it still seems like making that comparison is exactly what she is doing and that it is the basis for her conclusion that,
"It may well be that the savings produced by debt repayment are inferior to the benefits generated from spending budget surpluses in other ways."

The thing is, if we are going to justify borrowing at 5.5% in order to spend the money because that spending earns a return which is greater than 5.5%, that return has to be a return in increased tax revenue - not a 'benefit to society'.

Now when a business takes on an investment, it often borrows money to do so, so you may wonder why it doesn't make sense for a government to do the same thing. But think about all the other things that a (well run) business does. First of all, it only invests in projects which have a clear business case to show how that specific investment will generate a specific return which covers the cost of the money used to make that investment. Furthermore, the business will track the success of this investment, making adjustments as necessary to ensure that that return is met. Finally, if the return being generated is inadequate, the business will terminate the investment and use the freed up resources on some other project.

Now, consider one of the primary spending objectives that Russell suggests: "rebuilding the wide range of social programs that play a role in combating poverty and promoting social equity". Now, does anyone think it is really possible to do a study which will accurately estimate what the impact of doing this on total tax revenue collected by the federal government would be? And if this policy is implemented can we track whether we are getting the return we expected? And if we aren't, will these programs be shut down? We have to remember that government is not a business. That's why, if government takes on some activity which is like a business, that activity is isolated into a crown corporation which follows different financial rules from the rest of government.

Another point to consider - when a business is thinking about investing in a project, the required rate of return in order for that project to be considered worthwhile is not the cost of borrowing the money (or using equity) to invest in that project. The required rate of return depends on how risky the project itself is.

Now you may ask yourself, if a large corporation (say General Electric) can borrow at 7% in the market and has a risky project with a projected return of 10%, isn't that a good investment? The problem is that the reason GE can borrow at 7% is because it is such a large organization that, even if this particular project fails, GE can make up the difference from other areas and still pay back the people it borrowed from. So the risk to the people putting up the money for the project is less than the risk of the project itself (and the risk to GE) because the other parts of GE are effectively providing a loan guarantee.

So in the context of the federal government, the reason the government can borrow at a low rate (5.5%) is because the people lending to the government know that, if push comes to shove, few people win a shoving match with the federal government - since they can increase revenue or decrease spending by legislative fiat (in effect, at the barrel of a gun). What it means is that while the cost of funds for a spending project which the federal government borrows to pay for is only 5.5%, the true cost (depending on how risky the project is), may be much higher. The reason the rate is only 5.5% is because it is guaranteed by you, me and all the other taxpayers who are on the hook if the spending doesn't generate a return (in tax dollars) adequate to cover the interest.

Now this all sounds pretty abstract but it's not. Consider what happened in the 1970's and 1980's when the government effectively took the advice of the Centre for Policy Alternatives and borrowed money to invest in social programs (i.e. ran deficits).

Did this spending create growth in tax revenue which more than covered the borrowing costs? No, and we could see this by how the % of our taxes which went to interest payments kept increasing - hitting a high of near 40% in 1995. At some point, the government's lenders started to get nervous because the government was looking less and less able to make it's interest payments. Given the increased risk, they lowered our credit rating and raised our borrowing costs.

And what happened? All of a sudden taxes went up and spending went down: The government said, 'not to worry, we can force the taxpayers to get us out of this mess' and that's exactly what they did. The borrowing which was done in order to spend in the 70's and 80's failed to generate an adequate return, and we all ended up on the hook for what were essentially bad debts.

What we have to remember is that government generally spends money on things the market won't. And if the market won't spend on them, it's probably because the return is too uncertain or too low. Who really knows what the return on running a passport office is, or of operating a military. We shouldn't determine what our government spends it's money on based on the rate of return it generates in terms of tax dollars, we should determine it based on what's in our best interests as a society - the two are not the same.

In a nutshell, what I'm saying is that government should be funded by taxpayers, not lenders, because its culture, nature and spending priorities are such that it shouldn't, won't and can't make productive investments in the same way that a business does - and when the 'investments' inevitably fail to generate an adequate return in the form of tax dollars, it is the taxpayers who are left to pick up the tab - with interest.

1 Credit to Dalton, in the comments at Bound by Gravity, for helping me realize that think tanks/centres/institutions are not so different from group blogs - possibly a topic to explore further in a separate post.

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She grew on him like she was a colony of E. coli and he was room-temperature beef.

Paul Wells is doing a good job with the politics, but he's falling behind Doug's Dynamic Drivel in the race for most humourous blog. Doug's recent list of high-school writing class metaphors is great fun, even if "His vocabulary is as bad as, like, whatever."

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Saturday, February 19, 2005

Random Praise

Since my last post was a bit of a rant, I decided to change gears with this post, and throw out some kudos to a far from comprehensive list of bloggers who've been doing a good job lately (in my opinion, obviously):

First off, I've added Pints of Drivel to the blogroll. Lots of good commentary lately, including this interesting look at productivity, taxes and the upcoming federal budget.

Second, Andrew over at Bound by Gravity continues to deservedly get one of the most diverse readerships (and most interesting comments) among Canadian blogs.

If blogging is like a game of whack-a-mole where you try to take a swing and connect with each issue as it comes up then Timmy at Voice in the Wilderness is piling up a high score, commenting on everything from credit card interest rates to the same sex marriage debate, to U.S. foreign policy to the laws of cartoon thermodynamics. I particularly liked his post on the heritage and symbolism of the Canadian flag.

While I'm on the topic, Flag Day, the 15th of February, really should be added as a holiday. Goodness knows we could use one between New Year's and Good Friday - but I digress.

While digging around for commentary on the upcoming B.C. referendum (on switching to using Single Transferrable Vote for our electoral system), I ran across Double Blind, a long-running blog which is interesting reading for anyone interested in B.C. politics (or gambling), especially if you like looking at things from a mathematical perspective like I do. I thought the coverage of the recent B.C. budget was particularly good.

Finally, Paul Wells is always good, but he's been especially good lately (IMO) - I think I learned more from his coverage of the Danny Williams bru-ha-ha (sp?) and subsequent negotiations than I did from all other sources put together.

Keep up the good work, everyone.

Update: While I'm being charitable, I should also mention that while I don't think much of his columns (especially the ones on STV), Norman Spector's daily media round-up is most definitely a useful resource, and one that I check most days. Now if only he'd work on setting up decent archiving (with preserved links) for his round-up and stop writing columns about STV...


Friday, February 18, 2005

Time to Pack it In

After reading Norman Spector's latest comments on STV in the Vancouver Sun, I have come to the conclusion that it is (past) time for him to depart from the column writing business.

Let's start with the outright lie with which he concludes his column, saying that STV is "a voting system used by only one Commonwealth country"

The Sun should really publish a correction on this one, since clearly Australia and New Zealand are members of the Commonwealth and equally clearly both use STV for some elections (not to mention Scotland and Northern Ireland). I'm not sure why Spector feels that, on top of his pathetically transparent attempt to exclude Ireland (which uses STV) from discussion, he needs to lie outright as well.

But that's far from the only laughable part of this column. Now when you read the following line, "Proponents of STV claim that only politicians and political hacks favour the existing system", what do you expect is coming next?

I think you'd expect to be given an example of someone who favours the existing system, but isn't a politician or a political hack. But no, here's what comes next, "As I look at prominent names in the debate, however, I see the Bob Williams faction of the NDP -- represented by former cabinet minister Andrew Petter -- supporting STV. I see Moe Sihota -- representing the less ideological Dave Barrett wing -- opposing it. And I see a similar radical/moderate split on the right."

So you see, it isn't just politicians and political hacks who support the existing system, Moe Sihota, representing the less ideological Dave Barrett wing of the NDP, supports it too. And it's the same on the right!

It gets better. Spector's main point seems to be that, under STV, the Liberals wouldn't have decided to spend more money in the budget in the hopes of getting elected. He posits that, "STV would fragment our two big-tent, centrist parties and force politicians to compete for votes on the ends of the political spectrum." and that, "B.C. politics are not polarized. It's our society that's polarized -- along multiple fault lines. In fact, our political system is one of the few institutions that keep it all together." So you've got the argument right, having more than two parties would cause polarization - I don't agree, but at least it's a coherent point.

But further down, Norman backs his point up by saying that we don't want to become like Malta (which uses STV), since Malta is, "a country that's infamous for polarized politics." The thing is, Malta is also famous as the only jurisdiction which uses STV and which still has a two-party structure. So the infamously polarized Malta has a two party system, just like we do now, and Spector is basically contradicting his argument that a two-party system is the recipe for non-polarization.

There's more. Spector also claims that, "To date, proponents of the new voting system have been unwilling or unable to explain clearly where my vote and your votes would go after we mark our ballots."

Now the unwilling part is absurd. It is the Yes side which has a strong interest in explaining the STV system as well and as clearly as possible and a visit to any Yes-vote supporting site will reveal a strong emphasis on doing exactly that. For Yes supporters, ignorance (like Spector's) is our enemy.

As for the unable part, I doubt that Spector has conducted a poll, so one of two things must be true:

Either a) Spector has failed to understand how the vote counting will work - which makes the fact that he has written a number of columns criticizing the impact of the new system seem a little premature to say the least or

b) Spector understands it himself, but he is concerned for the little people in B.C. who don't have his intelligence to figure out this complicated system (which the Irish have been using since before WWII).

There's other nutty stuff as well, such as insinuating that STV will lead to a ban on abortion in one paragraph and then calling STV supporters an 'unholy alliance' (he seems to miss the irony) only a couple of paragraphs later.

Aside from all this, if Spector is going to comment on electoral reform, shouldn't he at least make a token effort to address all the flaws such as the lack of fairness and lack of power for voters which have driven us to consider dropping our current system? Or does he feel that if he keeps repeating his lie that 'only one country in the Commonwealth uses STV' like a mantra, then that is argument enough?

You put it all together and what you get is one of the most poorly written columns I've ever read, and one which the editors of the Sun should be embarrassed to have printed in their paper.

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Partisan Hack

I see that the NY Times had the same take on Greenspan's social security remarks as I did, both in an editorial and in Paul Krugman's column.

The biggest difference between what I wrote and what Krugman wrote is that he was a lot less polite,
"By repeatedly shilling for whatever the Bush administration wants, [Greenspan] has betrayed the trust placed in Fed chairmen, and deserves to be treated as just another partisan hack."


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Thursday, February 17, 2005

Government is not a Business - Part 1

The Liberal party in B.C. brought in it's latest budget a couple of days ago. Here is the unsurprisingly negative reaction from the NDP party.

The budget itself was pretty unremarkable. Tax relief for lower income people was welcome but still pretty meagre when compared to the tax cuts at the upper end of the income scale which were made in 2001. The rest of the budget consisted primarily of restoring some of the spending to various areas which have been cut over the last few years and trying to sell it as new spending. Overall, I don't think the Liberals management has been terrible, but circumstances are still showing that their initial tax cut in 2001 was too deep and that it should probably be partially (say 20%) rescinded.

The thing about the budget that really bothered me, is the claim that the government is forecasting surpluses for the next few years - a claim which is made by excluding capital spending from the government's balance sheet. As you can see from the budget summary here, the province's debt, while falling as a % of GDP, is still climbing as an absolute number. So to claim future surpluses as the budget does, and which the media reported as fact, seems wrong to me.

The government says that, "Borrowing for capital projects finances the building of schools, hospitals, roads and other social and economic assets. As these investments provide essential services over several years, the government, like the private sector, borrows to fund these projects and amortizes the costs over the assets' useful life." - but to me, there's a big difference between the way the private sector operates and the way the government operates.

For a business, it makes sense to exclude capital spending (e.g. building a hospital) from the calculation of profit (surplus) because capital spending creates an asset and the whole purpose of a business is to use it's assets to both the cover the cost of the money used to buy them (interest, if the money was borrowed) and to generate a profit on top of that. Whether the business is doing a good job of this can be measured by comparing its profit to its assets, calculating what is sensibly called the Return On Assets (ROA). If the assets are not generating an adequate return, they should be sold (or the business plan should be modified).

But for a government, building a school or a hospital or a road isn't going to generate a return which can be tracked back to that investment. There's no way of knowing for sure if there will ever be any profit (increased tax revenue or decreased spending for the government) which can be attributed to this investment and there's not much chance that these investments can be sold if they're not performing well. And as far as I can tell, the budget does not even try to measure the depreciation of all the government's assets and count that as an expense (although I could be wrong here - it's hard to say just by looking at what they've posted online).

In short, the government is not a business and it doesn't have any of the cultural or financial tools necessary to limit it's borrowing only to those items which generate an adequate return on investment or to track whether it's investments are earning an adequate return or to change course if they are not.

We recognize this distinction between government and business by identifying those areas of government activity which are like a business and isolating them in crown corporations which follow different financial rules from the rest of government.

So, I'm no expert on what typical practice is for governments around the world, but if you ask me, capital spending should be included in the general budget for a government, and if the total debt is going up, you're not running a surplus.

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Have Cake, Will Eat

According to the NY Times, Alan Greenspan "Backs Idea of Accounts for Retirement", but he "expressed unease that the change could lead to trillions of dollars in additional government borrowing in the next few decades."

In other news, Greenspan is reported to be supporting my plan to take a 3 month vacation to the South Pacific but is uneasy about the fact that I don't get that much vacation time and can't afford it.

The Times rightfully notes that,
"The comments were reminiscent of those Mr. Greenspan made just over four years ago, when he endorsed Mr. Bush's goal of cutting taxes on the theory that the government should gradually reduce its budget surpluses."

... but fails to remind readers that when Greenspan says that, "I think the existing structure is not working," he is referring to the structure that he himself set up back in 1983.

I appreciate that Greenspan has a tricky job trying to appease the 'tell-us-what-we-want-to-hear' Bush administration while reassuring the financial markets that he doesn't plan on having the U.S. default on it's debt at some point, but if anyone has the job security to call a spade a spade it's Greenspan and I think his disingenuous comments - which give support to Bush policies - are hurting the long term interest of Americans.

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Tuesday, February 15, 2005

This is Just Too Much Fun

PolSpy and Cathie from Canada (among others I'm sure) have already commented on this, so there's probably no need for me to pile on, but as a former Prime Minister once said, it's just too much fun.

Ay any rate, during a discussion with the Toronto Punjabi media last month, in an event which I'm assuming was part of the 'Gays Don't Have Any Rights Back Where You Come From, Right?' Conservative multicultural media blitz, Calgary MP Jason Kenney is quoted as saying, "Marriage is open to everybody, as long as they're a man and a woman. ... It doesn't say you can't marry if you're a homosexual. The fact is that homosexuals have been married and do marry."

So I guess if the Conservatives stage a coup and hold some token one-party elections, we can count on Jason being there to reassure us that we all have the freedom to vote as long as we vote for the Conservatives. One wonders how Kenney would feel if the situation was reversed and he was told that nothing was stopping him from getting married, he just had to marry a man.

You know, some days I feel like the Conservatives are just daring people to vote for them.

Update: more piling on at Lotusland and Sinister Thoughts

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Monday, February 14, 2005

Blog Incest

Over at STV For BC - Vote Yes!, Declan* has a brilliant, thoughtful, insightful post about the interaction between electoral systems and the number of women elected - posted in response to Bill Tieleman's latest anti-STV rant in the Georgia Straight.

* Disclosure: I am Declan.

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Sunday, February 13, 2005

The World's Most Dynamic e-business Marketing, Design and Consulting Agency

Via Darren Barefoot, I recommend this hilarious send-up of vague consulting-talk laden corporate websites.

Not all that long ago I had an interview with a company with a website quite similar to this one. As it turned out, there was a reason they didn't want to be too specific about their main lines of business.

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It's not often that I agree whole-heartedly with NY Times op-ed columnist Thomas Friedman, so I thought I'd mention his most recent column, No Mullah Left Behind.

Here's the essence of what he's saying,

"Imagine if President Bush used his bully pulpit and political capital to focus the nation on sharply lowering energy consumption and embracing a gasoline tax.

What would that buy? It would buy reform in some of the worst regimes in the world, from Tehran to Moscow. It would reduce the chances that the U.S. and China are going to have a global struggle over oil - which is where we are heading. It would help us to strengthen the dollar and reduce the current account deficit by importing less crude. It would reduce climate change more than anything in Kyoto. It would significantly improve America's standing in the world by making us good global citizens. It would shrink the budget deficit. It would reduce our dependence on the Saudis so we could tell them the truth. (Addicts never tell the truth to their pushers.) And it would pull China away from its drift into supporting some of the worst governments in the world, like Sudan's, because it needs their oil. Most important, making energy independence our generation's moon shot could help inspire more young people to go into science and engineering, which we desperately need."

and he doesn't mince words (not that he ever does) in his conclusion,

"But no, President Bush has a better project: borrowing another trillion dollars, which will make us that much more dependent on countries like China and Saudi Arabia that hold our debt - so that you might, if you do everything right and live long enough, get a few more bucks out of your Social Security account.

The president's priorities are totally nuts."

Now if he (Friedman) could only get over his rose-coloured glasses love affair with laissez-faire global capitalism, we'd really be making progress, but this is a good start.

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Cheap Shot

I was doing my usual scan of the National Post's front page while waiting for the lights to change the other day and I saw that they were making some format changes.

My first thought was that maybe they cut the font size in half since, under the old format, they only ever had room to print one side of every issue. Alas, no.

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I'm Just Sayin....

This is just a quick memo to any male readers in relationships that today's date is February 13.

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Saturday, February 12, 2005

Just a Side Order of Democracy Please

Jim Travers has an interesting take on Missile Defence in the Toronto Star.

"Back when Martin was toppling Jean Chrétien, the malevolently misnamed Son of Star Wars project was so low profile that Ottawa could have negotiated a role without much risk."

but now...

"Along with measuring growing opposition to the missile shield, EKOS Research finds that a majority of Canadians now think the issue could be important enough to justify a federal election."

and as a result...

"Liberals are now expected to bow to changed political realities at their March convention by confirming their antipathy to Star Wars."

with the lesson we take from this being that,

"Tough decisions demand that leaders lead. Seizing opportunity requires courage.

"This Prime Minister is falling short on both, first by failing to proselytize his policies and then by doing nothing. Now, he can only read today's poll and mourn what could so easily have been."

So if I'm reading this right, Travers is saying that Martin should have approved missile defence before Canadians learned enough about it to seriously oppose it. Interesting view on democracy, a little paternalistic if you ask me.

Update: Jonathan, over at No More Shall I Roam goes into more detail on why all those 'misguided' Canadians might have good reasons not to support Missile Defense.

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How Embarrassing

I see that Andrew Coyne's blog is back up and running, but he has been reduced by technical problems to running a lowly blogger blog. The shame!

Like 97.5%* of all right-wing Bloggers, he seems to be caught up in some sort of war-of-words with Warren Kinsella. I'm not really sure what about since when I see anyone mention Kinsella I stop reading since it's bound to be boring. If this is some sort of grand scheme by Warren to get all these folks so focussed on him that they forget about all the other stuff on their agenda it seems to be working to perfection.

At any rate, when he's not battling Kinsella or going on at length about bicycle helmets, Andrew is one of the best bloggers/political writers around, so it's good to see him back.

*this was an exaggeration.

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Economic Progress, Unskilled Labour, and Unions

Over at Babbling Brooks, Damian has an interesting post about the Wal-Mart store closure specifically, and about economic progress in general. Andrew over at Bound by Gravity echoes Damian, adds his own 2 cents, and gets some interesting comments.

While they both make some good points, I think they are confusing two separate issues - both of which are important in their own right, so I felt it was worth a post to try and sort things out.

The first issue is whether it wouldn't be better for people at Wal-Mart to be "doing something far more productive, and far more rewarding with their working lives."

To which I would say, of course. Our economic strength is a measure of how much value everybody creates. So to make progress, either people have to find better ways to do what they already do - or they have to stop doing what they are doing, and do something new which adds more value.

This is in essence the 'Creative Destruction' which Joseph Schumpeter described brilliantly in 'Capitalism, Socialism and Democracy'1, the process whereby old ways of doing things are destroyed by new ways - crafts are destroyed by assembly lines, switchboard operators are destroyed by automation and so on. In each case, society has an obligation to compensate those who have been left behind, both on moral grounds since they are the inevitable sacrifice we make to keep the system working and on practical grounds since the progress only continues if enough of the displaced people take things into their own hands and go find a new way to add value. But society also has an obligation not to prevent this creative destruction from happening, since it is the driving force which moves people from low value added jobs to high value added jobs.

Damian and Andrew connect this to Wal-Mart by suggesting that since working at Wal-Mart (for example) doesn't seem to add much value, society will be better off without these jobs. And since unionization would lead to higher pay and make these jobs more attractive to people, it is therefore a bad thing.

From my point of view, the exact opposite is true. Much in the same way that labour saving innovations will prosper much more in a society without slaves or cheap domestic servants, innovations (such as automated checkouts) will start to be used when the cost of what they are replacing (unskilled labour) gets high enough. So the surest way to make progress towards eliminating the dead-end, low paying jobs that Wal-Mart provides is to pay the people who do them as much as possible - thus giving Wal-Mart the greatest incentive to find ways to eliminate these jobs.

The second idea is the question of, given that these Wal-Mart jobs exist what is the appropriate amount for the workers to be paid?

To answer this question, I see two relevant numbers. The first is the supply point. That is, what is the minimum amount that Wal-Mart needs to pay to attract people to do the job. The second is the demand point. That is, how much can Wal-Mart afford to pay the workers and still make an acceptable return on investment.

Clearly, it is in Wal-Mart's interest to push wages as close to the supply point (as low) as possible. And clearly it is also in the workers interest to push wages as close to the demand point as possible. The natural advantage that Wal-Mart has in this battle is two-fold:

First, Wal-Mart is a single entity which makes decisions with one voice whereas the workers are all individual decision makers who decide what's best for them individually.

And second, because the jobs are unskilled, the supply of potential workers is larger than the demand for them (if it wasn't, we'd be at risk of inflation and the central bank would raise interest rates to restore this condition). So the individual workers are unable to push for more money because if they do, Wal-Mart will just say take a hike, we have other people who will work for what we offerred you.

This is why a union is needed - in order to level the bargaining playing field and allow the workers to keep for themselves a greater share of the value which they create.

As a final point, I think we should be careful to distinguish between work which is unskilled and work which doesn't add much value.

As the invention of the assembly line showed, it is possible at the same time to both vastly reduce the amount of skill needed to make something and at the same time vastly increase the amount of value added in the process. So while you might look at someone who's just standing by the door and greeting you as you come in and instinctively say, 'that person isn't adding much value', you have to consider that Wal-Mart's profit last year was over $9 billion and with no workers it would have been 0 (actually an enormous loss due to fixed costs, depreciation, etc.) - so clearly, even though the individual jobs are simple, the collective effect is to create a lot of value.

As for the specifics of this case, I can certainly understand why Wal-Mart did what it did. Like most people I can recount any number of union horror stories, and my experience with unionized workplaces is that they are usually pretty unpleasant and inefficient. And I don't know the details of the negotiations so it is possible that the union demands were outrageous and would indeed have made the store unprofitable. What I suspect, as do most people I'm sure, is that Wal-Mart could have afforded to reach a mediated settlement but that they chose instead to take a loss on this store to send a message to all the other ones.

What I find shameful about their decision is that for better or worse Canadian society has been constructed to allow unions to form and for all the problems I see with them, I'd still be awfully nervous about the future of labour conditions and income inequality in this country if they ceased to exist. By closing the store, Wal-Mart is saying that it doesn't want to play by the rules of Canadian society - and while it's (probably) not technically illegal for them to close a profitable store just because it has a union, it is certainly a violation of the spirit of the rules which we expect all companies to follow if they want to operate here.

1 I highly recommend 'Capitalism, Socialism, Democracy' (actually just the first part on capitalism, the parts on socialism and democracy aren't as good) to everyone (it's not long and it's quite readable). Schumpeter brilliantly defends capitalism against both 'left-wing' people who would rather see socialism instead and against 'right-wing' people who idolize the perfectly competitive marketplace as an ideal we should be striving for. It's definitely one of the books which had the biggest influence on my own ideas.

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Thursday, February 10, 2005

The Essence of Cathood

While I'm in short post mode, I should mention Doug's great post from a week or two ago on cat haikus in which he really captured the spirit of a cat as a pet.

Here's a sample:

"Your mouth is moving;
Up and down, emitting noise.
I've lost interest."

or one which captures my personal philosophy of life:

"Most problems can be
Ignored. The more difficult
Ones can be slept through."

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When 'Globalization' Goes Bad

If you've ever wondered why people protest against the World Bank or the International Monetary Fund (IMF), I recommend reading, 'Globalization and it's Discontents, by Joseph Stiglitz who was chief economist at the World Bank from 1997 to 2000.

In the meantime, I recommend reading this post 'How Economists Kill People' over at Crooked Timber. The quoted passage (from Peter Griffiths) is self-serving but harrowing nonetheless.

Over at Tilting at Windmills, Ian adds his comments on the post at Crooked Timber.

Want another example of globalization gone awry, this time with a Canadian angle? Check out Pogge's posts on reports that Canada is spearheading efforts to lift the moratorium on 'terminator seeds' (that is, ones which have been 'genetically engineered to produce only infertile seeds which farmers cannot replant.' Doesn't that sound like a great idea?

Update: As POGGE reports, the ban will live on, no thanks to us (the Canadian delegation).

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Who Elected Stacy and Clinton?

Courtesy of Spearin, I see that the State of Virginia has, in a move which will no doubt be applauded by 'What Not to Wear' co-hosts Stacy and Clinton, decided to ban "'indecent' low-slung jeans".

Libertarians must be outraged! And surely the American Civil Liberties Union doesn't need petty distractions like this with George Bush and his band of merry liberty-tramplers at large.

Update: As Simon points out in the comments, this bill was stopped by the Virginia Senate. I guess the campaign to get all those rapper/punk kids elected to the Senate paid off...

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Is That All There Is?

As you may have seen in the news, or over at Pogge's blog, or over at Voice in the Wilderness, Wal-Mart has decided to close its store in Jonquiere Quebec, the first unionized Wal-Mart store in Canada (there is one other).

Wal-Mart said it was closing the store because it was no longer financially viable. Now I think pretty much everyone would agree that this is just a bald-faced lie, but certainly I have neither the time nor the ability to prove it. But let's just say, for the sake of argument, that they're not lying and that this store has become unprofitable. To me there are two possible conclusions:

1) That's a hell of a coincidence, 235 stores in Canada and the only one which is unprofitable is the first one to be unionized. Not only that but there was no indication of any financial trouble until the union drive was underway and the financial problems didn't get severe enough for a closure until just before the negotiations with the union were going to go to mediation.


2) The only difference between a profitable Wal-Mart store and an unprofitable one is the ability to pay workers minimum wage. Which suggests that all the articles and studies about Wal-Mart's great efficiencies, it's supply chain management, it's economies of scale, all the benefits it brought to people by providing goods at lower prices - they were all nothing more than just a result of paying it's workers less money. So in all the incredible growth of Wal-Mart from an unknown regional player to the world's biggest retailer, there was no benefit to society at all - just a redistribution of wealth from already below average retail workers to the buying public and the Walton family. You know - it's more comforting to believe that they're just lying.

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Wednesday, February 09, 2005

Good Thing They Don't Read my Blog

Longtime readers may recall that I was somewhat annoyed with Jetsgo after they royally screwed up my flight home for Christmas.

Today I received a letter from them which, while still making excuses, actually apologized for the poor service and offerred a $350 voucher valid for up to one year on a Jestgo flight. But if they'd read my Blog they would have known I could be bought for less ($200)!

At any rate, it looks like I'll be flying Jetsgo next time I head home - here's hoping for clear skies.

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B.C. Liberal Government Going Green - Broccoli Green that is

Today was the day for the annual throne speech in B.C. (reaction from the globe and mail here - an NDP supporter's take on the speech here)

The biggest thing I took from the full text of the speech was that the B.C. government is in need of some good speech writers - I can't imagine how painful it would have been to listen to someone read this laundry list of everything the B.C. government has ever done or is thinking about doing, which included what must have been over a hundred references to how great B.C. is.

The next thing which struck me is that in it's five 'great' goals for the decade ahead...

  • To make B.C. the best educated, most literate jurisdiction on the continent.

  • To lead the way in North America in healthy living and physical fitness.

  • To build the best system of support in Canada for persons with disabilities, special needs, children at risk and seniors.

  • To lead the world in sustainable environmental management, with the best air and water quality, and the best fisheries management, bar none.

  • To create more jobs per capita than anywhere else in Canada.

... the government seems to be taking on some things it doesn't have much control over, most notably the healthy living and physical fitness.

For example, later on the speech reads, "it [the Government] will act now to increase by 20 per cent the proportion of British Columbians who eat the recommended daily level of fruit and vegetables."

As someone who has never eaten enough vegetables and probably never will, I am looking forward to seeing what the government has in store to try and succeed where all else (including my own efforts) has failed. A minor quibble perhaps but by definition, spending money on things you can't influence is a waste, so I prefer programs where the cause and effect is a little clearer and easier to measure.

Finally, the government really seems to be on the defensive over it's school funding, announcing a big funding increase for elementary/secondary funding while noting repeatedly that overall enrollment is down and at the same time promising to limit university tuition increases to inflation (nominal GDP growth seems like a better peg to me, but whatever).

All in all, this is a dull blog entry reflecting a dull speech which seemed more like an effort to cover off any political weaknesses prior to the upcoming election rather than a bold plan to create a 'golden decade'. (not that this is necessarily a bad thing - as Bush has proven, sometimes a bold Government plan is the worst outcome of all).

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Monday, February 07, 2005

The Blogging Turtle Finally Reaches the Finish Line

So I meant to post on a certain article I saw this morning, but by the time I got around to it, Timmy, Mahigan, Pogge, Jonathan, Rick, Robert and Bill had already beaten me to it - good work guys.

But hey, am I the only anti-SpongeDob blogger with a day job or what? :)

Since Robert wrote last, his is the best summary of all that came before. For me, all I want to add to the initial article about the American religious groups who have made Canada their next target after bravely taking on Spongebob Squarepants, is to contrast it with this article from around the time of the U.S. election on what Americans think of people who meddle in other country's business.

Personally I kind of like the sounds of a nice Dobson-Harper (U.S. fundamentalist - Canadian Conservative) photo-op. Maybe at the corner of Church and Wellesley in Toronto on a late June weekend (say, the 26th), preferably in the run-up to an election campaign.

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Why I Wouldn't Want to be a Politician

The last 2 poll questions on the Globe and Mail website:

Should a university education be free? 50% say yes.
Given the highly misleading TD report from a couple of weeks back, should tax relief be the first priority in the upcoming federal budget? 67% say yes.

In a previous poll 40% were in favour of a child care program, despite the question being worded negatively.

And I'm guessing polls on more military spending would get a pretty big yes vote as well.

And we haven't even talked about health care yet.

I have this dream that someday people will realize that you can't have big tax cuts and big spending increases at the same time without going (further) into debt.

Which is all my way of leading up to the fact that the federal budget is coming up on February 23 and I'm not too optimistic about the prospects for my personal number one priority: maintaining a healthy budget surplus.

More to come on this as the budget approaches...

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A Moment of Blog Silence

After not being updated since before Christmas, it now appears that Against All Flags, the excellent blog of Captain Flynn - who was one of the earliest supporters of this Blog - has disappeared to the bottom of the virtual seas.

You're missed Captain.

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Sunday, February 06, 2005

STV meeting, new blog

First off, I went to the Yes campaign Vancouver meeting last Saturday. Don't believe me? (see for yourself). It reminded me why I don't like politics - because it always involves a lot of interacting with other people, one of my least favourite activities. This has nothing to do with the people supporting the yes campaign, who all seem like the kind of knowledgeable, committed people who make democracy work. It's just a recognition of my personality, which is more suited to solitary pursuits than social ones.

Which leads me to my second point, which is that, partly to avoid this blog being overrun by STV posts, and partly just to get all my STV stuff in one place, I have created a new 'Vote Yes' blog.

I cross posted over everything I had posted here on STV already, and I have also added a bunch of posts including:

How did we get here? (Backgrounder) (some background info on what led to this referendum)
What the heck is STV? (an explanation of how the Single Transferrable Vote system works.
Why Vote Yes (short version) (a more concise explanation of why I support switching to STV) and most recently,
A survey of what's out there on the web relating to STV in B.C.

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Saturday, February 05, 2005

Superbowl Sunday

Over at his blog, Colby Cosh explains that he is cheering for the Patriots to win tomorrow (or at least limit McNabb's stats) because: "a Patriots win would be a blow to the interests of the groupthink machine, which thrives on novelty." and "If the technically outrageous Vick were playing in this Super Bowl, instead of a B-grade traditional passer like McNabb, the story would be football instead of the second coming of Doug Williams."

In addition, he seems concerned that if the Eagles win or McNabb does well, the media will take it as as a further rebuttal of Rush Limbaugh's comment (which cost him his job) that, "I think what we've had here is a little social concern in the NFL. The media has been very desirous that a black quarterback do well. There is a little hope invested in McNabb, and he got a lot of credit for the performance of this team that he didn't deserve. The defence carried this team."

Some of his other concerns are that McNabb being friendly to the media makes them hype him too much, that the Falcon's offensive system doesn't suit Michael Vick, that the media is too critical of QB's that run a lot like Vick and too favourable to pocket passers, that the media gives too much praise to the team that wins and not enough to the team that loses and that Eagles receivers Pinkston and Mitchell are underrated.

Hey, Colby lives in a complicated world, mine is much simpler. As a lifelong Eagles fan I say, Go Eagles!!

Update: Crap. Offseason homework assignment: Clock management. Good effort though.

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On a day like this...

..Vancouver housing prices almost makes sense. There's nothing like walking around in early February without needing a jacket.

Still no explanation for Toronto though.

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Friday, February 04, 2005

I Stand Corrected

After watching a few minutes of Bush's State of the Union Address and hearing of his plan to cut the deficit in half in another 5 years, I concluded that fiscal responsibility wasn't a big priority for Bush & Co.

But that was before I read this:

"The people in Congress on both sides of the aisle have said, 'Let's worry about the deficit,'" Bush said Friday in Omaha, Neb., as he barnstormed the country for his Social Security (news - web sites) plan. "I said, 'OK, we'll worry about it again.' My last budget worried about it, this budget will really worry about it."

I guess there was no need for me to worry.

Also, while I'm on the topic, if you haven't read Robert's State of His Blahg Address yet, you're missing out.

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Wednesday, February 02, 2005

Copyright Lockdown

Over at No More Shall I Roam, Jonathan has posted the follow-up to his excellent post on the new copyright legislation which may be coming in Canada and why it's a bad idea.

Like Jonathan, I have a link on the right side of the page, which provides contact info for your MP, in case you feel like reminding them that they were elected to represent your interests and not the Disney Corporation's.

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So much for fiscal conservatism

I was flipping channels and came across Bush's state of the union address in progress.

I stopped to listen and the first thing I heard was that they were going to stick to their plan to cut the deficit in half by 2009 (followed by a long round of applause).

The next point was that government should spend tax dollars wisely or not at all (followed by more applause). Apparently interest payments to foreign countries are considered a wise use of tax dollars.

Also, I don't know if this is normal since I don't watch too many speeches, but it seems really odd to see/hear people clapping after every sentence.

Oh and apparently social security is heading towards bankruptcy (??) and needs to be saved ... Man what a pile of *** all this social security stuff is ... 'We have to move ahead with honesty'... man I really feel sorry for any American who actually pays attention to reality. OK, time to change the channel.

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