Wednesday, November 29, 2006
Tuesday, November 28, 2006
So Vancouver is locked in the death grip of bitter winter. Three things occurred to me today as I shivered my way home: 1) I don't think I've ever seen the electronic boards have to use a minus sign before. Nice to see they were prepared for the situation, 2) It's kind of odd that Vancouver, of all cities, seemed better able to handle a snowfall and freeze-up than it was able to handle the heavy rains we had the week before, and 3) It was almost as cold as the first day I lived in Calgary, when I nearly froze my ass off wandering around looking for the Banff Trail C-Train station1 - on the chilly, windy, morning of May 8, 2002.
Anyway, for a city that doesn't get much snow, Vancouver sure looks pretty when it does hit and stick. Beats rain, that's for sure.
1Kudos to Wikipedia for a suitably bleak picture.
Friday, November 24, 2006
State of the Nation
But that's not really the point. The point is that federal politicians should be responsible adults, and responsible adults shouldn't be needlessly stirring up trouble - either through their own myopia (Ignatieff) or due to a congenital preference for being clever as opposed to doing what is right (Harper). Quebec, like the rest of the provinces, is always making demands on the federal government, and taking the easy road of always giving in to win votes is not the route to a strong successful federal government.
In his brilliant book, Capitalism, Socialism and Democracy, one of the many points Joseph Schumpeter made was that Democracy can be analyzed from an economic perspective. And if you ask me, it seems like there is market-share to be gained for a federal party which actually represents what I suspect is the majority view on this issue - that if we're talking nation, as in Nation, as in League of Nations, United Nations, National government etc., then Quebec is clearly not a nation. And if we're talking nation as in a bunch of people who share a bunch of defining attributes and live in (or used to live in) roughly the same part of the map, then there are a whole lot of nations within the boundaries of the Nation of Canada: First Nations, Alberta nation, Leaf Nation, Richmond, you get the picture. Maybe Quebec is the biggest or the most vocal or the most clearly defined of these small 'n' nations, but I'm still pretty sure that it is unwise to single them out for special 'national' recognition.
I guess we'll see if any politicians emerge to supply what I strongly suspect the people of Canada demand - a politician who thinks standing up for Canada is something you do, not a slogan you paint on a sign to try and win votes so you can gain power, turn around and gain more votes by selling Canada out. Hopefully, if things do swing back towards the responsible federalist position on this, they don't swing too far in the other direction leading to the rise of xenophobic politics.
If we're lucky, the whole thing will just blow over.
Monday, November 20, 2006
Nickel For Your Thoughts
Saturday, November 18, 2006
First, voting is open for the 2006 Canadian Blog Awards, one vote per day, per computer is allowed, if I recall correctly. Due to my tardiness, there are only 3 days left, with voting closing on Tuesday.
Second, days after I wrote about Milton Friedman, he passed away. Maybe a sign I should go back and re-read Capitalism and Freedom.
Third, Go Lions!
Fourth, the weather, it could be better.
Fifth, no, that is all for now. More later.
Thursday, November 09, 2006
From the Huh? Department
"What a difference a year makes, as the Minnesota Wild and Vancouver Canucks are in position for a playoff run,"
Reading the story, I learned that,
"the Vancouver Canucks – the other Northwest team to miss the playoffs last season – are another team in the division that would make the playoffs if the season ended today."
and that this is because,
"In Vancouver, the Canucks are enjoying a level of goaltending stability absent in recent years. Off-season addition Roberto Luongo has started all but one of the Canucks’ first 16 games. He has a .913 save percentage, which is a good thing, considering the Canucks struggle to score goals."
Just one problem with this scenario: the Canucks are only on pace for 87 points this year - last year they got 92. The only reason Vancouver is currently in a playoff position is because they have played more games than all the other teams in the conference (except the hopeless Kings). And somehow I'm thinking that the games played situation will have resolved itself by the end of the season.
Wednesday, November 08, 2006
But even beyond the House and Senate races, I was struck by the positive (vs. my expectations) results of the various state initiatives.
There were three initiatives relating to abortion, a complete ban in South Dakota and a requirement of parental notification in California and Oregon. All 3 were defeated.
There were six initiatives to raise the minimum wage and all of them passed, many with some of the biggest margins of any initiative.
Missouri voted to allow stem cell research, and one state, Arizona, even rejected a ban on same-sex marriage.
Admittedly, most states approved bans on same-sex marriage and an initiative to restrict affirmative action passed in Michigan, but generally the results were positive and quite 'liberal'.
Finally, Nevada is creeping closer to getting majority support for an initiative to legalize marijuana (44% voted yes this time, as opposed to 39% in 2002), and a similar measure in Colorado got 40% support.
On the topic of marijuana, the Globe and Mail had an article the other day, 'Pot Buying Goes Corporate', which talks about the increasingly professional customer service of organizations in New York City which will deliver pot to your door.
This article prompted Richard Roskell to comment:
"It's no wonder Americans are turning to home delivery for their recreational drugs. If you were down on the street buying them you might run into homophobic evangelists consorting with male prostitutes."
...which is pretty funny, I have to say, but on a more serious note, the article is just one more sign of the inanity of our drug laws with regard to marijuana.
It makes me a wonder how a referendum on legalizing put would go in B.C. (assuming the government didn't arbitrarily set a 60% threshold for any such vote to 'pass'). One thing is for sure, such a referendum would bring out a lot of opponents arguing that it may be a good idea but we shouldn't do it because the Americans would get upset. But the way things are going, if we don't do it, the Americans just might do it first.
Saturday, November 04, 2006
Moving Up the Economic Ladder
"The maintenance of a free society is a very difficult and complicated thing. And it requires a self-denying ordinance of the most extreme kind. It requires a willingness to put up with temporary evils on the basis of the subtle and sophisticated understanding that if you step in to try to do them, you not only may make them ... worse, but you will spread your tentacles and get bad results elsewhere ...
The argument for collectivism, for government doing something is simple. Anybody can understand it. If there's something wrong, pass a law. If somebody is in trouble, get Mr. X to help him out. The argument for a free - for voluntary cooperation, for a free market is not nearly so simple. It says, you know, if you allow people to cooperate voluntarily and don't interfere with them, indirectly through the operation of the market, they will improve matters more than you can improve it directly by appointing somebody. That's a subtle argument, and it's hard for people to understand,"
One obvious problem with this argument is the sad intrusion of reality which demonstrates that people actually do generally end up better off when government helps them, but that's not what I want to talk about today.
Instead, I want to talk about Friedman's suggestion that resistance to the argument that government should never interfere with markets is based on people not understanding how the market works. I'm guessing that the kind of thing Friedman has in mind here is the microeconomic theory which suggests that if you raise the minimum wage, you'll just end up with more unemployment, so people will be worse off. Because, Friedman would argue, people just see someone is not getting paid much, they have a knee jerk reaction that government should help them and they pass a minimum wage law, and before you know it, all the low paying jobs disappear and the person who was low-paid before is now unemployed.
Friedman wrote that quote in 1975 so perhaps he was unaware at the time how easy it could be to instill in people a mindset that 'government is bad and markets are good', and how simple that philosophy, his philosophy, really was.
These days, the Friedman, 'government-bad, market-good' philosophy continues to drive much of our government agenda with regard to economic issues. For example, consider the drive by the Conservative government to eliminate the Canadian Wheat Board - classic 'government-bad, market-good' thinking.
So, in Friedman logic, there is a hierarchy:
On the first, bottom rung are people who think government should just fix every problem in society and don't understand the benefits the market brings.
And then on the second, top rung, there are those who have been enlightened with the knowledge of how it is always better to leave something to the market than to get government involved. This second position is embodied by the classical economist, and the mindset permeates any introductory economics text I've ever encountered.
But here's the problem, this second rung of classical economic enlightenment isn't actually the top rung. One level higher are those who have realized that, in many cases, economic activity is best left to the market, but there are a number other cases where there are good reasons (and lots of supporting empirical evidence) to believe that just leaving the situation to the market is not optimal.
There are lots of reasons why government involvement may improve over allowing he market to operate without interference. Externalities may disrupt the pricing mechanism in the market, collective action problems may drive counter-productive market behavior, information asymmetries may lead to inefficient use of resources, natural monopolies may allow small number of people to extract huge rents from the economy for little gain and so on.
But what often happens, in my opinion, is that people on the second rung, Friedman's 'government-bad, market-good' brigade, often end up removing government action dictated by a third rung understanding of the flaws in the market. And they do so while completely failing to address the reasons why the government was involved in the first place. And they can do so because they have convinced themselves, like Friedman, that those who oppose them do so, not because they understand how the market may fail in this particular instance, but because they oppose the market in its entirety. So the second rung folks write off their opponents as first-rung simpletons all the while destroying the benefits that had been created by those with a third rung understanding of why government intervention is helpful in that particular case.
These second rung folks look around at all the government involvement in the economy and it is incomprehensible to them, a seemingly random intrusion of government into all these different areas with no rhyme or reason. Without moving up to the third rung there is no way for them to understand. Why is there heavy regulation of, and government involvement in, utilities, media, education and health care, but little government involvement in retailing, electronics manufacturing or theme parks? The answer is that government is involved where government is needed, but the reason why government is needed varies from case to case, which is what makes this third rung more complicated than Friedman's second rung.
For example, utilities operate networks, which are natural monopolies (it doesn't make sense to have two or more companies running water piper around town, with two sets of pipes running down the same street, with the intakes from each house being re-routed every time someone switches from water company A to water company B). So water supply will generally be a monopoly and, if left unregulated, a monopoly can charge extremely high prices and make huge profits at little benefit to society - so it makes sense for government to regulate prices to ensure that people aren't exploited. This is just one example. The rationale for government involvement in education is different, and the rationale for government involvement in health care is different again.
Ian Welsh is fond of explaining the true small 'c' conservative mindset:
"when a reformer rushes up and says, "there's a fence down the middle of the road, that makes no sense! We need to tear it down!" a real conservative's reply is "tell me why the fence was put up in the first place and I might let you take it down."In the context of this post, what it means is that when the second rung 'government-bad, market-good' folks come to town talking about how government should stop doing activity X, the proper question from the third rung is to say, why was government involved to begin with, and what has changed to no longer necessitate that intervention.
Which is not to say that the 'market-good' crowd never has a valid point. Take electricity. Electricity distribution is a natural monopoly, in the same way that water distribution is. So it makes sense for government to be involved in the distribution of electricity, and indeed government is involved. Historically, technological limitations made it impractical to separate electricity generation from electricity distribution so the government run/regulated company which distributed the power was the same one that generated the power. But with a modern grid, it has become technologically possible to separate these two functions.
So, if we can separate out the part which government has to be involved in (distribution) and the part where there is not the same need (generation) than it seems plausible that opening up the market for electricity generation might lead to benefits. And indeed, if you look at B.C. for example, the government has created a new organization, the British Columbia Transmission Corporation, for the purpose of making just such a split. Naturally, the small c conservative impulse suggests that this change is monitored for its empirical results (which haven't all been good in other jurisdictions which have tried this - see California, Alberta, Ontario) as bad results might suggest that there are other reasons - beyond the technical link between generation and distribution - why electricity generation shouldn't be opened up to market forces.
Let's consider another example. As I alluded to earlier, the 'market-good, government-bad' second rung crowd in the federal Conservative party has decided they want to do away with the Canadian Wheat Board. Take a look at this press release from the party website and see if you can spot what's missing.
That's right, there is nothing there about why the Wheat Board was set up in the first place, how well it is accomplishing those objectives, or what might have changed to make the Board no longer necessary. This is second rung thinking charging ahead and trying to get government out of the economy without thinking of the potential consequences. This CBC backgrounder on the Wheat Board only offers the fact that individuals farmers can now monitor prices over the internet as evidence that anything has changed since the Board was created, which seems like a pretty thin reed to base a change on. If nothing else, the fact that the U.S. is constantly arguing to have the Wheat Board removed because it is an unfair advantage for Canadian Farmers might lead one to consider the thought that farmers are better off with the Wheat Board in place.
Mapleleaf Web has a more detailed look at the Wheat Board, including an explanation of the rationale for government involvement:
"The basic concept behind the Canadian Wheat Board, that a single organization will have more power negotiating contracts for the sale and transportation of grain than individual farmers, is not a recent development; it has its origins in economics, and the law of supply and demand.
Wheat and other grains have what economists refer to as 'an inelastic demand': the price of the product has to rise or fall significantly for there to be a noticeable impact on demand for the product. For example, consumers' demand for bread (milled from wheat) tends to remain fairly constant. Accordingly, it would take a sharp increase or decrease in the price of bread to have a significant impact on the total quantity of wheat purchased.
The economics of farming mean that farmers do not necessarily benefit from a 'bumper' harvest. If the majority of farmers have a good harvest and there is a surplus of wheat, it takes a significant drop in prices for farmers to sell all their wheat. Further to this, individual farmers tend to sell wheat at the peak time of the harvest, when the supply is greatest. This is understandable, as farmers must pay their bills for the year, want to reduce interest charges on bank loans, and may lack sufficient storage capacity to store the grain and wait until the supply drops and prices rise to sell. However, it means they are unable to take advantage of any shifts in the price of wheat that may come later in the year.
Historically in Canada, however, while individual farmers were at the mercy of market conditions, elevator operators and other stock market speculators were able to take advantage of the situation through 'hedging' and 'futures trading' on the market. For example, elevator operators would buy the grain from the farmers, keep the grain in storage, and then sell to a buyer when prices rose."
It doesn't seem to me that any of that has really changed recently.
Anyway, to get back to my main point, Friedman is right: there are people who just have a knee-jerk reaction that government should fix things and there are indeed people who are anti-markets and it's true that many of these people don't understand the benefits that a market brings to an area of economic activity by setting prices and encouraging competition.
But the real problem is that there is a far larger, much more powerful group of people (e.g. our current federal government) who have a knee-jerk reaction that the best solution is to leave everything to the market and get rid of government involvement in every area, even those areas where they lack an understanding of why government is involved in the first place and where empirical evidence shows the concrete benefits of government involvement.
As a footnote, it's worth noting that, while I think my post captures a bit of what goes on in terms of the ideological debate around government involvement in the economy, as a practical matter, corporations are their supporting interest groups are powerful enough in our society that much of what I've written is overwhelmed by a drive to make life easier for corporations, mixing more or less government involvement in the economy according to whatever happens to benefit large corporations in each instance.
For example, consider the Conservative government's stance on intellectual property. If they really were possessed of the simple minded 'market good, government bad' attitude that they display with regard to the Canadian Wheat Board, then you would think that they would be hostile to government intervening in the economy to enforce widespread monopolies. But nothing could be further from the case. And I'm sure once Bev Oda, recipient of significant donations from corporate interests supporting extending intellectual property rights, and also Canadian Heritage Minister, introduces updates to copyright law, it will be more of the same.
It is hard to make the case that a government that wants to abolish a monopoly that helps farmers but is at the same time actively extending a monopoly which helps pharmaceutical companies at the expense of the health of Canadians is being driven by a consistent ideology.