Tuesday, July 21, 2009

Whither Policy Debate?

The first thing that I noticed about the difference between American and Canadian politics when I moved down here is how partisan some U.S. networks are. Say all you want about CTV and CBC's biases; they are nothing compared to Fox and MSNBC's. On the surface, this gave the impression that Canada's political discourse is superior to America's.

But over time, I have noticed that while there are more political media fireworks in the U.S., there is also more (of course, still not very much) substantive policy debate. For example, the merits of the GM bailout were much more debated down here than back home, even if relative to each country's economy, the amount contributed by Ottawa is roughly twice the amount contributed by Washington. Of course, the debate didn't get very deep in the U.S. mainstream media either, but at least some substantive issues were mentioned (underlying causes, beyond the recession, of GM's woes; long-term viability; desirability of instead letting GM fail, etc.). In Canada, beyond the reporting of the basic facts and stereotypical reactions, virtually nada.

Or take the last election campaign in both countries. Other than the short-run state of the economy, the main issue in the U.S. was health care, while it was the Green Shift in Canada. In the U.S., the discussion touched upon whether a mandate is desirable (comparing the Clinton and Obama plans), the long-run impact of the policies on the fiscal situation (costs of the Obama plan and creeping tax increase implied by the McCain plan), and other slightly technical issues that are nevertheless possible to explain to the general public, and important for understanding the different proposals' implications. In Canada, the media basically said, "The Green Shift will raise your taxes, but reduce pollution. Other than that it's too complicated for you to understand, oh stupid Canadians. By the way, the NDP wants cap-and-trade, while the Conservatives want regulation." It went on to repeat thousands of times that the Green Shift is too complicated, while never attempting to report on the differential economic and environmental impacts of the carbon tax, cap-and-trade, and regulation approaches.

There are many reasons why there is less substantive policy debate in Canada, not all of which are bad, and here I consider a few. First, Canada arguably faces fewer big problems than the U.S.: the long-run fiscal outlook is not nearly as dire, it is not mired in Iraq, its healthcare system (despite all its flaws) does provide reasonable care to almost everyone, etc. This, obviously, is good for Canada, but doesn't mean that there isn't anything important to debate.

Another possible reason is that Canada has fewer high-profile independent policy analysts. It helps when Nobel Prize laureates (like Paul Krugman and Gary Becker) have their own blogs. Even though academics are biased like everyone else, the fact that they don't speak on behalf of a party, interest group, company or think tank reduces the likelihood that they face outside pressure to further bias their analysis. What do you find more informative: that Greenpeace supports a carbon tax, or that Greg Mankiw, George W. Bush's former chief economic advisor and now Harvard professor, supports a carbon tax? Part of the problem is that Canada is much smaller than the U.S., and that can't be changed. But our academics becoming less timid and our media giving them more room could go a long way toward changing things.

A third factor is that Conservatives and Liberals have viewpoints that differ less than Republicans and Democrats do. I'm not sure whether this is a good thing, though I'm certainly happy that there isn't a sizable Sarah Palin wing of the CPC.

Also, Canadians spend much more time worrying about the provincial distribution of federal money than Americans. This is mainly because relative to state/provincial governments, the U.S. government spends more money directly than the Canadian government, which instead transfers more money to fund provincial governments. These transfers make regional inequities more transparent: it's easier to get outraged at Quebec and the Maritimes getting so much in equalization, than to get outraged at provinces with higher unemployment getting so much in EI premiums. So as we debate more about inter-regional distribution issues, we think less about "big" national issues. I don't think its bad that Canadian provinces have more spending power than U.S. states, but I do think it's unhealthy for Ottawa to constantly tweak the equalization formula and bail out regional industries that are in a semi-permanent state of crisis.

Finally, there's Canada's iron-tight party discipline. When one argues against another party, it's easy to simply appeal to broad philosophical differences and gut feelings. But when one argues against someone from their own party, one is forces to have a more careful discussion. Surely some Liberals were for cap-and-trade, some Dippers were for a carbon tax, and some Tories were uneasy with regulation. But while in the U.S. and many other countries, these intra-party debates are in good part public, in Canada, they tend to stay mostly private.

In the end, this means that if you're a policy wonk like me, Canadian political discussions leave you wanting (or maybe they don't even whet your appetite). Don Newman retiring won't help. Let's hope Andrew Coyne isn't planning to go anywhere anytime soon. But at least, our electoral system, with its potential for dramatic swings in very short periods, keeps things interesting! (Of course, it also contributes to the stifling party discipline mentioned above...)


Anonymous said...

I don't understand this example

"The middle-class worker, however, faces a rate much higher than 29.7% because he is trying to save. Indeed, with no tax, he would receive $1*(1.04^20) = $2.191 in 20 years. With tax, he starts out with $0.703 to invest. But then, each year, his return is (1-0.297)*4% = 2.812% because interest is also taxed (assuming he stays in the same bracket throughout). As a result, in 20 years, he will only have $0.703*(1.02812^20) = $1.224. He is giving up $0.967 out of $2.191 in taxes, or 44.1%. If he saves for 30 years instead of 20, the effective tax rate is 50.2%.

You could create a similar scenario for the rich guy if you were looking to prove that he paid way more - just change up the investment scenario - you've not provided a fair playing ground so I don't get the point

Election Watcher said...

Yes, a rich saver pays even more. My point is that the current system penalizes savers. This penalty is so large that it can easily cause middle-class savers to pay a higher tax rate than rich non-savers. Obviously the most taxed person is the rich saver.

Why did you post the comment under an unrelated post?