About half of non-Conservative supporters claim to be ready to vote strategically in order to beat the Conservatives. This is a guide for those voters. But mainly, this is entertainment for political junkies. So don't feel too dirty reading this if you're a Conservative! (In fact, if you're an anti-NDP Conservative, you can also use this guide to figure out when you might want to vote Liberal.)
A couple of disclaimers:
- If you want to vote strategically, it may be a good idea to wait until Election Day. If you have to vote early, do it, but understand that today's advice may be irrelevant or even counterproductive come October 19. I will be posting an updated guide on the eve of Election Day.
- Follow the advice below at your own risk and peril. I make no guarantee that this advice is correct. In fact, there will almost certainly be a few ridings where it is wrong. (Though, hopefully, it will be right in most cases.) So don't complain to me if things don't work out!
There are actually three strategic considerations for anti-Harper voters, and they sometimes conflict.
1. Vote to defeat the Conservative candidate at the riding level.
2. Vote for the party most likely to beat the Conservative seat count.
3. Vote for the party most likely to beat the Conservative popular vote.
People sometimes dismiss the popular vote as meaningless in our system. However, this time, it may be important post-election: if the Tories win the seat count, it'd be much easier for Justin Trudeau to claim legitimacy to govern if he wins the popular vote. This means that the Governor General may be more likely to give Trudeau a chance to form government (instead of calling a new election) after the rejection of a Conservative Throne Speech if the Liberals win the popular vote. If the only relevant strategic consideration for you is #3 (e.g. you live in a non-competitive riding and care about the popular vote), you do not need a guide: vote Liberal.
The more important considerations, however, are likely to be #1 and #2. That's what the rest of this post is about. There are 143 ridings where you may want to vote strategically to defeat a Conservative. They are distributed as follows:
BC (23/42): 13 vote NDP, 7 vote Liberal, 3 too close
AB (7/34): 5 vote Liberal, 1 vote NDP, 1 too close
SK (6/14): 6 vote NDP
MB (5/14): 4 vote Liberal, 1 vote NDP
ON (62/121): 53 vote Liberal, 4 vote NDP, 5 too close
QC (29/78): 8 vote NDP, 3 vote Liberal, 1 vote Bloc, 17 too close
NB (4/10): 4 vote Liberal
NS (3/11): 3 vote Liberal
PE (1/4): 1 vote Liberal
NL: none
Territories (3/3): 2 vote Liberal, 1 vote NDP
Total outside Ontario: 30 vote NDP, 29 vote Liberal, 1 vote Bloc, 21 too close
Grand total: 82 vote Liberal, 34 vote NDP, 1 vote Bloc, 26 too close
As you can see, the advice is heavily skewed towards the Liberals, but that's entirely due to Ontario. Outside Ontario, the Liberal and NDP overall popular support levels are similar, so as one would expect, the strategic voting advice splits roughly evenly. The other interesting observation is that Québec is a total mess.
There are also 35 ridings where you may want to vote Liberal for consideration #2 (or, if you're a Conservative, to block the NDP or the Bloc). In the other 160 ridings, strategic voting is not recommended.
1. Vote to defeat the Conservative candidate at the riding level
In the 143 ridings listed below, the difference between the Conservative vote share and the top non-Conservative one is less than 15%.
- "Vote X" means that party X is 15% or more above all other non-Conservative options.
- "Wait if you can, otherwise vote X" means that party X is 5-15% above the next highest non-Conservative option. (Counted as "Vote X" in summary above)
- "Too close" means that the top two non-Conservative options are within 5% of each other. These options are listed in parentheses.
Vote Liberal (64)
BC (5): North Vancouver, Richmond Centre, South Surrey--White Rock, Vancouver South, West Vancouver--Sunshine Coast--Sea to Sky Country
AB (5): Calgary Centre, Calgary Confederation, Calgary Skyview, Edmonton Mill Woods, Fort McMurray--Cold Lake
MB (4): Charleswood--St. James--Assiniboia--Headingley, Saint Boniface--Saint Vital, Winnipeg South, Winnipeg South Centre
ON (41): Ajax, Aurora--Oak Ridges--Richmond Hill, Brampton South, Burlington, Cambridge, Don Valley East, Don Valley North, Don Valley West, Eglinton--Lawrence, Etobicoke Centre, Etobicoke--Lakeshore, Glengarry--Prescott--Russell, Haldimand--Norfolk, Kanata--Carleton, Kenora, King--Vaughan, Kitchener--Conestoga, London West, Markham--Stouffville, Markham--Unionville, Milton, Mississauga Centre, Mississauga East--Cooksville, Mississauga--Erin Mills, Mississauga--Lakeshore, Mississauga--Streetsville, Nepean, Newmarket--Aurora, Northumberland--Peterborough South, Oakville, Oakville North--Burlington, Orléans, Ottawa West--Nepean, Peterborough--Kawartha, Pickering--Uxbridge, Richmond Hill, Scarborough--Guildwood, Toronto--St. Paul's, Vaughan--Woodbridge, Willowdale, York Centre
QC (3): Lac-Saint-Louis, Mount Royal, Pierrefonds--Dollard
NB (2): Fredericton, Miramichi--Grand Lake
NS (2): Central Nova, Cumberland--Colchester
PE (1): Egmont
Nunavut
Wait if you can, otherwise vote Liberal (18)
BC (2): Delta, Steveston--Richmond East
ON (12): Bay of Quinte, Brampton Centre, Brampton East, Brampton North, Hamilton West--Ancaster--Dundas, London North Centre, Kitchener Centre, Kitchener South--Hespeler, Scarborough Centre, Scarborough--Rouge Park, St. Catharines, Waterloo
NB (2): New Brunswick Southwest, Saint John--Rothesay
NS (1): South Shore--St. Margarets
Yukon
Vote NDP (9)
BC (5): Cowichan--Malahat--Langford, Kootenay--Columbia, Nanaimo--Ladysmith, Port Moody--Coquitlam, South Okanagan--West Kootenay
AB (1): Edmonton Griesbach
SK (1): Desnethé--Missinippi--Churchill River
MB (1): Elmwood--Transcona
QC (1): Beauport--Limoilou
Wait if you can, otherwise vote NDP (25)
BC (8): Cariboo--Prince George, Coquitlam--Port Coquitlam, Courtenay--Alberni, Esquimalt--Saanich--Sooke, Kamloops--Thompson--Cariboo, Mission--Matsqui--Fraser Canyon, North Island--Powell River, Pitt Meadows--Maple Ridge
SK (5): Regina--Lewvan, Regina--Qu'Appelle, Saskatoon--Grasswood, Saskatoon--University, Saskatoon West
ON (4): Algoma--Manitoulin--Kapuskasing, Hamilton East--Stoney Creek, Niagara Centre, Oshawa
QC (7): Abitibi--Baie James--Nunavik--Eeyou, Argenteuil--La Petite Nation, Beloeil--Chambly, Charlesbourg--Haute-Saint-Charles, Portneuf--Jacques-Cartier, Québec, Vaudreuil--Soulanges
Northwest Territories
Attendez si vous le pouvez; sinon, votez Bloc (1)
Bécancour--Nicolet--Saurel
Too close (26)
BC (3): Burnaby North--Seymour (NDP/LIB), Fleetwood--Port Kells (NDP/LIB), Vancouver Granville (LIB/NDP)
AB (1): Edmonton Centre (LIB/NDP)
ON (5): Brantford--Brant (LIB/NDP), Essex (NDP/LIB), Sault Ste. Marie (LIB/NDP), Scarborough North (LIB/NDP), Scarborough Southwest (LIB/NDP)
QC (17): Alfred-Pellan (LIB/NDP), Avignon--La Mitis--Matane--Matapédia (BQ/LIB), Beauport--Côte-de-Beaupré--Île d'Orléans--Charlevoix (BQ/NDP), Berthier--Maskinongé (NDP/BQ), Brome--Missisquoi (LIB/NDP), Chicoutimi--Le Fjord (NDP/BQ), Gaspésie--Les Îles-de-la-Madeleine (BQ/LIB), Jonquière (NDP/BQ), Laurentides--Labelle (NDP/BQ), Laval--Les Îles (NDP/LIB), Louis-Hébert (NDP/LIB), Pontiac (NDP/LIB), Rimouski-Neigette--Témiscouata--Les Basques (NDP/BQ), Saint-Maurice--Champlain (NDP/BQ), Salaberry--Suroît (NDP/BQ), Sherbrooke (NDP/BQ), Vimy (NDP/LIB)
2. Vote for the party most likely to beat the Conservative seat count
This party is currently the Liberal party. The 35 races below are ones where: i) the Tories are not competitive, and ii) the difference between the Liberal vote share and the top non-Liberal one is less than 15%. In all cases, you would help defeat the NDP; in Québec, you would also help defeat the Bloc in the starred (*) ridings.
BC (2): Surrey Centre, Victoria
MB (1): Churchill--Keewatinook Aski
ON (11): Beaches--East York, Ottawa Centre, Parkdale--High Park, Spadina--Fort York, Sudbury, Thunder Bay--Rainy River, Thunder Bay--Superior North, Timmins--James Bay, Toronto Centre, University--Rosedale, York South--Weston
QC (18): Ahuntsic-Cartierville, Châteauguay--Lacolle*, Compton--Stanstead*, Dorval--Lachine--LaSalle, Hochelaga*, Hull--Aylmer, La Pointe-de-l'Île*, LaSalle--Émard--Verdun*, La Prairie, Laurier--Sainte-Marie*, Longueuil--Charles-LeMoyne*, Marc-Aurèle-Fortin, Montarville*, Outremont, Papineau, Pierre-Boucher--Les Patriotes--Verchères*, Rivière-des-Mille-Îles*, Ville-Marie--Le Sud-Ouest--Île-des-Soeurs
NS (2): Halifax, Sackville--Preston--Chezzetcook
NL (1): St. John's South--Mount Pearl
All right, that's all the fun for now. Are you ready for Super Friday? FIVE national polls are due: Léger, Mainstreet and Nanos in the morning, Innovative at some point, and EKOS in the afternoon. (In fact, the Léger national and Québec numbers are already out: like most polls in the past few days, it's good news for the Liberals.)
Showing posts with label Opinion. Show all posts
Showing posts with label Opinion. Show all posts
Thursday, October 8, 2015
Wednesday, September 16, 2015
Economic Commentary: NDP and Liberals Still Differ on Attitudes Toward Markets
By now, countless articles have been written about how, with the NDP's move to the centre and the Liberals' move to the left, the two parties' economic policies have become very similar. Indeed, various journalists have even mused that the Liberals are now to the left of the NDP. While the scope and objectives of the policies proposed by the two parties are indeed similar, Liberal policies tend to transfer money and then let the market do its work, while NDP policies often attempt to weaken market forces (or quash them altogether) in a populist way. That is, the Liberal economic approach is still much more market-oriented than the NDP one. Below are several major policy planks of the two parties that illustrate this distinction.
Helping the Middle/Working Class
- The Liberals are proposing a new top bracket of 33% that would finance a cut to the middle bracket to 20.5%.
- The NDP is proposing a $15/hour minimum wage that would affect a minority of workers in federally regulated industries.
Both of these policies make the system more progressive. They are obviously not targeted to the same people: the Liberals are targeting the middle (and upper middle) class, while the NDP is targeting the working class. The difference I want to emphasize, however, is that the Liberals are proposing to allow the market to clear under rules that favour more redistribution. The NDP, by contrast, wants to push the market farther away from equilibrium (which will likely slightly increase unemployment) by instituting a higher price floor. Note also the populist element of the NDP policy: nobody's tax is getting raised. However, the populism comes at a price: consumers of the affected goods and services will be paying more regardless of their income.
Family Policy
- The Liberals want to increase transfers to most families and make them more progressive.
- The NDP wants to create a new $15/day national daycare program.
Here again, the Liberals are proposing to make the system more progressive while letting people decide how the money is spent. The NDP's answer, on the other hand, is a brand new one-size-fits-all government program. Once again, the NDP is hiding some of the costs of its proposal by requiring provincial contributions that may not be forthcoming.
Raising More Tax from the Rich
- The Liberals would hike the personal income tax rate for incomes above $200,000 from 29% to 33%.
- The NDP would hike the corporate income tax rate from 15% (to a soon-to-be-specified level, probably not above 17.5%).
The populist appeal of a corporate tax hike is clear. However, most economists would argue that, from an efficiency standpoint, personal income taxes are preferable (however, value added taxes, such as the GST, are even more efficient). Moreover, a hike in the corporate tax rate would hit all shareholders: rich investors, yes, but also anyone with stocks (or stock-based mutual funds and ETFs) in their RRSPs, and anyone participating in a private or public pension plan, including the CPP. The Liberal policy is closer to economists' advice, while NDP policy has more visceral appeal at the price of being less efficient and more poorly targeted.
Deficits and Investment
- The Liberals want to fund a lot of additional investments by running a deficit in the short run.
- The NDP wants to fund some additional investments while maintaining a balanced budget.
The deficit issue is probably the comparison that led some to believe that the Liberals are now to the left of the NDP. However, fiscal policy is only one aspect of economic policy. More importantly, the Liberal proposal is more responsive to current market conditions (i.e. extremely low interest rates), and the proposed deficits are small enough that the debt-to-GDP ratio, which determines affordability, is not projected to increase. The NDP position is once again populist and lacks nuance ("surplus good, deficit bad").
Youth Jobs
- The Liberal strategy mainly relies on grants (other than the direct Parks Canada jobs).
- The NDP strategy relies partly on grants, and partly on a requirement to hire youth on infrastructure projects with federal funding above $10 million.
The NDP approach relies more heavily on additional regulation and on a piecemeal, sectoral approach, focusing on jobs linked specifically with public infrastructure projects - not allowing the market to dictate where those jobs are. It requires smaller grants per job than the Liberal plan, but some of the cost is simply hidden in the requirement put on federally funded infrastructure, which will increase the required budget on those projects.
As illustrated above, the Liberals' and NDP's economic platforms are, in fact, quite in line with the parties' respective economic philosophies. (Of course, one can find individual policies that don't fall in line, but the ones outlined above constitute the bulk of the most economically significant ones.) What has changed is that the Liberals are proposing more than they traditionally do, and the NDP is proposing less. But the kinds of policies they're proposing suggest that neither party has fundamentally changed its economic thinking: the Liberals remain more market-friendly, and the NDP remains more statist and populist.
Helping the Middle/Working Class
- The Liberals are proposing a new top bracket of 33% that would finance a cut to the middle bracket to 20.5%.
- The NDP is proposing a $15/hour minimum wage that would affect a minority of workers in federally regulated industries.
Both of these policies make the system more progressive. They are obviously not targeted to the same people: the Liberals are targeting the middle (and upper middle) class, while the NDP is targeting the working class. The difference I want to emphasize, however, is that the Liberals are proposing to allow the market to clear under rules that favour more redistribution. The NDP, by contrast, wants to push the market farther away from equilibrium (which will likely slightly increase unemployment) by instituting a higher price floor. Note also the populist element of the NDP policy: nobody's tax is getting raised. However, the populism comes at a price: consumers of the affected goods and services will be paying more regardless of their income.
Family Policy
- The Liberals want to increase transfers to most families and make them more progressive.
- The NDP wants to create a new $15/day national daycare program.
Here again, the Liberals are proposing to make the system more progressive while letting people decide how the money is spent. The NDP's answer, on the other hand, is a brand new one-size-fits-all government program. Once again, the NDP is hiding some of the costs of its proposal by requiring provincial contributions that may not be forthcoming.
Raising More Tax from the Rich
- The Liberals would hike the personal income tax rate for incomes above $200,000 from 29% to 33%.
- The NDP would hike the corporate income tax rate from 15% (to a soon-to-be-specified level, probably not above 17.5%).
The populist appeal of a corporate tax hike is clear. However, most economists would argue that, from an efficiency standpoint, personal income taxes are preferable (however, value added taxes, such as the GST, are even more efficient). Moreover, a hike in the corporate tax rate would hit all shareholders: rich investors, yes, but also anyone with stocks (or stock-based mutual funds and ETFs) in their RRSPs, and anyone participating in a private or public pension plan, including the CPP. The Liberal policy is closer to economists' advice, while NDP policy has more visceral appeal at the price of being less efficient and more poorly targeted.
Deficits and Investment
- The Liberals want to fund a lot of additional investments by running a deficit in the short run.
- The NDP wants to fund some additional investments while maintaining a balanced budget.
The deficit issue is probably the comparison that led some to believe that the Liberals are now to the left of the NDP. However, fiscal policy is only one aspect of economic policy. More importantly, the Liberal proposal is more responsive to current market conditions (i.e. extremely low interest rates), and the proposed deficits are small enough that the debt-to-GDP ratio, which determines affordability, is not projected to increase. The NDP position is once again populist and lacks nuance ("surplus good, deficit bad").
Youth Jobs
- The Liberal strategy mainly relies on grants (other than the direct Parks Canada jobs).
- The NDP strategy relies partly on grants, and partly on a requirement to hire youth on infrastructure projects with federal funding above $10 million.
The NDP approach relies more heavily on additional regulation and on a piecemeal, sectoral approach, focusing on jobs linked specifically with public infrastructure projects - not allowing the market to dictate where those jobs are. It requires smaller grants per job than the Liberal plan, but some of the cost is simply hidden in the requirement put on federally funded infrastructure, which will increase the required budget on those projects.
As illustrated above, the Liberals' and NDP's economic platforms are, in fact, quite in line with the parties' respective economic philosophies. (Of course, one can find individual policies that don't fall in line, but the ones outlined above constitute the bulk of the most economically significant ones.) What has changed is that the Liberals are proposing more than they traditionally do, and the NDP is proposing less. But the kinds of policies they're proposing suggest that neither party has fundamentally changed its economic thinking: the Liberals remain more market-friendly, and the NDP remains more statist and populist.
Friday, April 29, 2011
Conservative Majority Out of Reach? NOT SO FAST!
The Toronto Star reported this morning that the Conservatives think it is "almost impossible" for them to win a majority. Specifically, they say they need to win 74 Ontario seats in order to get to 155. Are these sources telling the truth, that they're at just 81 outside Ontario?
Here is the number of ex-Ontario seats projected for the Conservatives by each of the 8 websites that use a polling average:
Calgary Grit: 98 (from Monday)*
ThreeHundredEight.com: 92
LISPOP: 91
Canadian Election Watch: 91
Too Close to Call: 87
The Mace: 87
democraticSPACE: 85
Riding by Riding: 85 (from earlier today)*
*The latest projection's breakdown is not available.
Is the Conservatives' internal polling having them a lot lower than public polls? Do they use a seat model that's significantly less generous to them than all the ones above?
Unlikely. They are probably playing the media, perhaps hoping that fewer left-wingers in the GTA vote if they don't think a Tory majority is possible. Update: Or maybe they're trying to lower expectations, so that they can have more legitimacy if they "unexpectedly" come very close to 155.
To be fair, just 81 seats outside Ontario isn't insanely low, but it's just not what you'd expect, on average, based on current Conservative numbers.
Here is the number of ex-Ontario seats projected for the Conservatives by each of the 8 websites that use a polling average:
Calgary Grit: 98 (from Monday)*
ThreeHundredEight.com: 92
LISPOP: 91
Canadian Election Watch: 91
Too Close to Call: 87
The Mace: 87
democraticSPACE: 85
Riding by Riding: 85 (from earlier today)*
*The latest projection's breakdown is not available.
Is the Conservatives' internal polling having them a lot lower than public polls? Do they use a seat model that's significantly less generous to them than all the ones above?
Unlikely. They are probably playing the media, perhaps hoping that fewer left-wingers in the GTA vote if they don't think a Tory majority is possible. Update: Or maybe they're trying to lower expectations, so that they can have more legitimacy if they "unexpectedly" come very close to 155.
To be fair, just 81 seats outside Ontario isn't insanely low, but it's just not what you'd expect, on average, based on current Conservative numbers.
Thursday, April 28, 2011
My Favourite Tweet of the Campaign
@VeryEthnic says:
@acoyne endorses Canucks: http://bit.ly/mCBLXO. @globeandmail endorse the fucking Predators http://bit.ly/k2cbTl
@acoyne endorses Canucks: http://bit.ly/mCBLXO. @globeandmail endorse the fucking Predators http://bit.ly/k2cbTl
Monday, April 11, 2011
Tax Fairness and TFSAs
Some people on the left dislike TFSAs because they mainly benefit the rich, and are therefore "unfair." It's definitely true that TFSAs will eventually become a large drain on government finances and that the proceeds will mostly accrue to the wealthy. However, they can also enhance the fairness of our tax system.
To see why, one needs to first understand how our system works without TFSAs. Here's a question: between a single BC resident making $50,000 and one making $150,000, who faces the higher tax rate on the next dollar earned? (Assume for simplicity that both are single with no dependents and only have wage income.)
At first glance, the answer is very simple: the first taxpayer is in the 29.7% bracket (combined federal and provincial), while the second is in the 43.7% bracket. So the richer guy pays more, and all is good.
The above answer is actually wrong. To really determine the tax on that extra dollar of income, you need to know whether that dollar will be saved or not. Suppose that the first (poorer) taxpayer is scrimping and planning to put that dollar away (say for 20 years, at 4% interest), while the second is splurging and would immediately spend the extra income.
The tax rate on the richer taxpayer is of course still 43.7%.
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%.
Our tax system makes the scrimping middle-class guy face a greater marginal tax rate than the freewheeling rich guy: it penalizes saving, and this penalty can outweigh the progressiveness of the tax brackets. TFSAs mitigate this problem.
Of course, we do have RRSP's and RESP's where saving is not penalized. But retirement and a child's education are not the two only worthy goals that require putting money aside.
Now, it is true that on average, TFSAs will mostly benefit those that are already rich, since they tend to save more. (But due to features of our retirement system, lower-income Canadians might benefit more than you'd expect.) The solution is simple: pay for them by raising the regular tax rates for the highest bracket(s). This way, all savers will benefit (even the rich ones, since they'll probably save more than the extra tax they pay), while rich spenders will pay. This seems eminently fair to me: what's troubling about inequality isn't that some people's bank accounts are bigger than others', but that some eat caviar in mansions while others starve on park benches.
Of course, right now might not be the best time to enact a policy that promotes saving because we need strong consumer spending to keep the recovery going. But eventually, Canadians as a whole need to save more. Expanding TFSAs in 2014 or 2015 sounds pretty good to me - especially if it is combined with (or funded by) a progressive measure. Of course, the party proposing the former is quite unlikely to do the latter...
Politically, the NDP is attacking Harper for a policy that "leaves most families behind." The Liberal response has been more muted (and fair), criticizing TFSAs along with other policies for reducing what's available for health care funding. Whether Ignatieff goes further during the debate might be a good indication of where he is in the Big Red Tent - on the lefty side or on the centrist side.
Now, allow me to be a bit fanciful. What if we enact unlimited TFSAs by phasing out all taxation on interest, dividends and capital gains? Such a move would reduce the unfair and inefficient bias toward consumption over saving (you'd also have to kill the corporate income tax to eliminate it). In addition, imagine the drastic simplification of the tax system - no more need for RRSPs, RESPs, complicated TFSA rules, T3s, T5s, a whole bunch of lines on the T1, Schedules 3, 4 and 7, tax planning, etc. All the time, energy and trees we'd save would be worth hundreds of millions every year!
The downside, of course, is that this would be a highly regressive move unless combined with a strongly progressive element. Paying for it just by raising top tax rates would unfortunately make them transparently punitive. (Keep in mind that current top tax rates are, in fact, even more punitive for savers: somebody facing a 45% combined federal-provincial rate actually pays a whopping 71.3% on an extra dollar of saving earning a 5% interest over 30 years. It's just that the actual tax rate is shrouded.)
A better way to go about this would be to enact a $50/ton carbon tax. This would raise roughly twice the revenue currently generated (at the federal level) by taxing investment income and capital gains. The other half of the money could then be used in ways that mainly benefit the poor and the middle class.
To see why, one needs to first understand how our system works without TFSAs. Here's a question: between a single BC resident making $50,000 and one making $150,000, who faces the higher tax rate on the next dollar earned? (Assume for simplicity that both are single with no dependents and only have wage income.)
At first glance, the answer is very simple: the first taxpayer is in the 29.7% bracket (combined federal and provincial), while the second is in the 43.7% bracket. So the richer guy pays more, and all is good.
The above answer is actually wrong. To really determine the tax on that extra dollar of income, you need to know whether that dollar will be saved or not. Suppose that the first (poorer) taxpayer is scrimping and planning to put that dollar away (say for 20 years, at 4% interest), while the second is splurging and would immediately spend the extra income.
The tax rate on the richer taxpayer is of course still 43.7%.
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%.
Our tax system makes the scrimping middle-class guy face a greater marginal tax rate than the freewheeling rich guy: it penalizes saving, and this penalty can outweigh the progressiveness of the tax brackets. TFSAs mitigate this problem.
Of course, we do have RRSP's and RESP's where saving is not penalized. But retirement and a child's education are not the two only worthy goals that require putting money aside.
Now, it is true that on average, TFSAs will mostly benefit those that are already rich, since they tend to save more. (But due to features of our retirement system, lower-income Canadians might benefit more than you'd expect.) The solution is simple: pay for them by raising the regular tax rates for the highest bracket(s). This way, all savers will benefit (even the rich ones, since they'll probably save more than the extra tax they pay), while rich spenders will pay. This seems eminently fair to me: what's troubling about inequality isn't that some people's bank accounts are bigger than others', but that some eat caviar in mansions while others starve on park benches.
Of course, right now might not be the best time to enact a policy that promotes saving because we need strong consumer spending to keep the recovery going. But eventually, Canadians as a whole need to save more. Expanding TFSAs in 2014 or 2015 sounds pretty good to me - especially if it is combined with (or funded by) a progressive measure. Of course, the party proposing the former is quite unlikely to do the latter...
Politically, the NDP is attacking Harper for a policy that "leaves most families behind." The Liberal response has been more muted (and fair), criticizing TFSAs along with other policies for reducing what's available for health care funding. Whether Ignatieff goes further during the debate might be a good indication of where he is in the Big Red Tent - on the lefty side or on the centrist side.
Now, allow me to be a bit fanciful. What if we enact unlimited TFSAs by phasing out all taxation on interest, dividends and capital gains? Such a move would reduce the unfair and inefficient bias toward consumption over saving (you'd also have to kill the corporate income tax to eliminate it). In addition, imagine the drastic simplification of the tax system - no more need for RRSPs, RESPs, complicated TFSA rules, T3s, T5s, a whole bunch of lines on the T1, Schedules 3, 4 and 7, tax planning, etc. All the time, energy and trees we'd save would be worth hundreds of millions every year!
The downside, of course, is that this would be a highly regressive move unless combined with a strongly progressive element. Paying for it just by raising top tax rates would unfortunately make them transparently punitive. (Keep in mind that current top tax rates are, in fact, even more punitive for savers: somebody facing a 45% combined federal-provincial rate actually pays a whopping 71.3% on an extra dollar of saving earning a 5% interest over 30 years. It's just that the actual tax rate is shrouded.)
A better way to go about this would be to enact a $50/ton carbon tax. This would raise roughly twice the revenue currently generated (at the federal level) by taxing investment income and capital gains. The other half of the money could then be used in ways that mainly benefit the poor and the middle class.
Thursday, March 31, 2011
More Policies: Tories on Trade, Grits on Pensions, Dippers on Corporate Taxes
The second batch of policy announcements is, on the aggregate, somewhat better than the first, but still unimpressive to me.
The Tories reiterate their support for free trade agreements, which I generally support, but offer few details. They also say that under a hypothetical "Liberal coalition," free trade agreements wouldn't happen. Does this mean that if the Liberals win and propose a trade deal, the Tories would side with the NDP and the Bloc in opposing it? To me, this issue doesn't put too much light between the two main parties: perhaps the Conservatives would be somewhat more proactive than the Liberals in seeking trade agreements, but the Grits are hardly protectionists. Still, this is a much better policy than the ill-conceived family tax cut announced earlier.
I have little to say about funding the hydroelectric project in the Atlantic: I don't know enough details to determine whether it's a good project. If it is a worthwhile investment, the appropriateness of federal funding depends on one's own view of the federation. Although given that Hydro-Québec did not get any help from the federal government over the years, the Bloc is totally justified in hammering this move. (Yes, the Bloc is often too whiny, but not on this one.)
The Liberals want to expand the CPP, allow Canadians to invest more with the CPP, and expand the GIS. I'm generally against the first idea, in favour of the second, and neutral concerning the third.
My opposition to an expansion of the CPP is because my generation is already getting a pretty bad deal out of it because we're effectively subsidizing seniors. While CPP long-term real returns are forecast at about 4%, Canadians born between 1970 and 2000 will only get a 2.2-2.4% return on their contributions according to the latest CPP actuarial report (see page 74). Instead of their money doubling every 18 years or so, people under 40 have their money doubling every 30 years. This is because those born before 1950 are able to enjoy returns above 4%. An expansion of the CPP, even gradual (unless it's done over 40 years), will further disadvantage young workers.
Allowing Canadians to invest more with the CPP is a good idea. Many people might like to save more, but do not know how to appropriately invest their savings. Moreover, asset management fees are often ridiculously high. The CPP would provide a low-cost way for Canadians to benefit from professional financial services. The flip side is that it wouldn't be a personalized option, so each citizen will have to assess whether the CPP strategy responds to their needs - but at the very least, having more choice won't hurt. Because additional contributions are capped at the RRSP deduction limit, this policy probably won't put too much strain on the CPP investment board or squeeze the private asset management industry too much. I'd like to see this policy implemented.
Finally, whether you want to expand the GIS is essentially a moral question concerning your attitude toward redistribution and how responsible poor seniors are for their situation.
The NDP keeps on going with economic policies that sound good, but either won't work or aren't cost effective. Why increase the gap in tax rates between large and small companies? Doing so increases the amount of economic distortion (you're essentially penalizing successful firms that become big), and is a woefully inefficient way of doing redistribution. Indeed, corporations aren't people: their owners/shareholders are. Are shareholders of big firms richer than owners of small businesses? Keep in mind that big firms are often largely owned by pension funds, which represent average Canadians. A much more effective way to redistribute is through the personal income tax system. Unfortunately, at the NDP, when populism and progressivism clash, the former often wins out.
The tax credit for creating new jobs will run into trouble too. Do I get the credit if I fire a worker and hire someone else the next day? The next week? The next month? The next year? Also, you would be penalizing firms that held on to their employees through the recession (because they wouldn't be able to get the credit by "creating" jobs) and paying firms that got rid of workers at the first sign of trouble. Guess what they'd do the next time around...
The Tories reiterate their support for free trade agreements, which I generally support, but offer few details. They also say that under a hypothetical "Liberal coalition," free trade agreements wouldn't happen. Does this mean that if the Liberals win and propose a trade deal, the Tories would side with the NDP and the Bloc in opposing it? To me, this issue doesn't put too much light between the two main parties: perhaps the Conservatives would be somewhat more proactive than the Liberals in seeking trade agreements, but the Grits are hardly protectionists. Still, this is a much better policy than the ill-conceived family tax cut announced earlier.
I have little to say about funding the hydroelectric project in the Atlantic: I don't know enough details to determine whether it's a good project. If it is a worthwhile investment, the appropriateness of federal funding depends on one's own view of the federation. Although given that Hydro-Québec did not get any help from the federal government over the years, the Bloc is totally justified in hammering this move. (Yes, the Bloc is often too whiny, but not on this one.)
The Liberals want to expand the CPP, allow Canadians to invest more with the CPP, and expand the GIS. I'm generally against the first idea, in favour of the second, and neutral concerning the third.
My opposition to an expansion of the CPP is because my generation is already getting a pretty bad deal out of it because we're effectively subsidizing seniors. While CPP long-term real returns are forecast at about 4%, Canadians born between 1970 and 2000 will only get a 2.2-2.4% return on their contributions according to the latest CPP actuarial report (see page 74). Instead of their money doubling every 18 years or so, people under 40 have their money doubling every 30 years. This is because those born before 1950 are able to enjoy returns above 4%. An expansion of the CPP, even gradual (unless it's done over 40 years), will further disadvantage young workers.
Allowing Canadians to invest more with the CPP is a good idea. Many people might like to save more, but do not know how to appropriately invest their savings. Moreover, asset management fees are often ridiculously high. The CPP would provide a low-cost way for Canadians to benefit from professional financial services. The flip side is that it wouldn't be a personalized option, so each citizen will have to assess whether the CPP strategy responds to their needs - but at the very least, having more choice won't hurt. Because additional contributions are capped at the RRSP deduction limit, this policy probably won't put too much strain on the CPP investment board or squeeze the private asset management industry too much. I'd like to see this policy implemented.
Finally, whether you want to expand the GIS is essentially a moral question concerning your attitude toward redistribution and how responsible poor seniors are for their situation.
The NDP keeps on going with economic policies that sound good, but either won't work or aren't cost effective. Why increase the gap in tax rates between large and small companies? Doing so increases the amount of economic distortion (you're essentially penalizing successful firms that become big), and is a woefully inefficient way of doing redistribution. Indeed, corporations aren't people: their owners/shareholders are. Are shareholders of big firms richer than owners of small businesses? Keep in mind that big firms are often largely owned by pension funds, which represent average Canadians. A much more effective way to redistribute is through the personal income tax system. Unfortunately, at the NDP, when populism and progressivism clash, the former often wins out.
The tax credit for creating new jobs will run into trouble too. Do I get the credit if I fire a worker and hire someone else the next day? The next week? The next month? The next year? Also, you would be penalizing firms that held on to their employees through the recession (because they wouldn't be able to get the credit by "creating" jobs) and paying firms that got rid of workers at the first sign of trouble. Guess what they'd do the next time around...
Tuesday, March 29, 2011
Policy Choices So Far: Boo, Meh and Whaaaa?
Each of the three major parties has made one big announcement so far in the campaign.
Conservatives: "Stephen Harper's family tax cut" would allow families with children under 18 to split up to $50,000 in income. As in any income splitting scheme, this will only benefit couples where the two people are in different tax brackets. Clearly, this is a highly regressive policy since it will not benefit at all low-income and many middle-income households.
Worse, even in terms of economic efficiency, this policy's effect is at best ambiguous, and in fact probably negative. The tax cut will reduce the marginal tax rate of the first earner in some couples by effectively putting him/her in a lower bracket. But now the second person in the couple faces higher taxes on his/her labour income. For the vast majority of Canadian families, having at least one full-time earner is necessary - that person will have an incentive to work more, but there's only so much overtime you can do. However, for many couples, whether the second partner works is much more of a choice. Under the Conservative plan, there will be a strong disincentive for that person to work. As a result, the net long-term effect of this policy on the economy may well be contractionary. In any case, it is unlikely to be expansionary - which is pretty sad for a tax cut.
Think about it: a proposal that is regressive, contractionary, and costs money. Boo.
Liberals: The Canadian Learning Passport will provide $1,000-$1,500 per year for up to 4 years to students at post-secondary institutions. Before getting too excited, however, parents and youth should note that this grant replaces the education and textbook credits (the tuition credit will stay). For a full-time student, those credits are now worth $465/mo x 8 mos/yr x 15% = $558/yr, or say $500/yr after time discounting because students often don't have the income to benefit from the credit right away. Therefore, the true benefit of the Liberal proposal for most families is only about half the advertised amount.
It is unclear whether this policy is progressive: although low-income families get more per child, children from high-income families are more likely to go to university. It is also unclear whether it is economically efficient - this depends on how many more kids go to a university as a result (I'm assuming that's a good thing), and on economic distortions generated by the cost. Meh.
NDP: Wants to cap credit card interest at prime+5% (8% currently) and to regulate credit card transaction fees. Just the interest rate cap will nab something on the order of $10 billion from credit card companies. Think about how much we'll all save - a wonderful free lunch! Whaaaa?
The credit card industry may generate high profits, but it also requires lots of capital. The question is how much excess profits it generates - i.e. profits over and above what all that capital would generate if invested elsewhere. The answer is, most probably, much less than $10 billion. After all, if offering cards were that profitable, banks would be falling over each other to give cards with better terms in order to attract more customers.
If only credit cards with 8% interest and low transaction fees can be offered, then:
1. there will be a lot fewer of them;
2. those that exist will have little or no rewards, and high annual fees.
Canadians will then have two choices:
- pony up that big annual fee up front; or
- use debit, keep checking their chequing account balance to make sure balance doesn't run low, and go through the hassles and uncertainty of getting a personal loan when a little extra is needed.
My guess is that few would choose the former option, so the NDP proposal would essentially kill credit cards in Canada. Most Canadians would simply end up losing the convenience of revolving credit and probably paying a bunch of extra bank fees instead of credit card interest. The NDP is probably smart enough to know this. Part of the party may even think that getting rid of credit cards is a good thing, though I would hope that the majority is not that paternalistic. Most likely, they are banking (probably rightfully so) on enough Canadians being naïve enough to support this policy, knowing full well that they'll never get a chance to implement it.
Conservatives: "Stephen Harper's family tax cut" would allow families with children under 18 to split up to $50,000 in income. As in any income splitting scheme, this will only benefit couples where the two people are in different tax brackets. Clearly, this is a highly regressive policy since it will not benefit at all low-income and many middle-income households.
Worse, even in terms of economic efficiency, this policy's effect is at best ambiguous, and in fact probably negative. The tax cut will reduce the marginal tax rate of the first earner in some couples by effectively putting him/her in a lower bracket. But now the second person in the couple faces higher taxes on his/her labour income. For the vast majority of Canadian families, having at least one full-time earner is necessary - that person will have an incentive to work more, but there's only so much overtime you can do. However, for many couples, whether the second partner works is much more of a choice. Under the Conservative plan, there will be a strong disincentive for that person to work. As a result, the net long-term effect of this policy on the economy may well be contractionary. In any case, it is unlikely to be expansionary - which is pretty sad for a tax cut.
Think about it: a proposal that is regressive, contractionary, and costs money. Boo.
Liberals: The Canadian Learning Passport will provide $1,000-$1,500 per year for up to 4 years to students at post-secondary institutions. Before getting too excited, however, parents and youth should note that this grant replaces the education and textbook credits (the tuition credit will stay). For a full-time student, those credits are now worth $465/mo x 8 mos/yr x 15% = $558/yr, or say $500/yr after time discounting because students often don't have the income to benefit from the credit right away. Therefore, the true benefit of the Liberal proposal for most families is only about half the advertised amount.
It is unclear whether this policy is progressive: although low-income families get more per child, children from high-income families are more likely to go to university. It is also unclear whether it is economically efficient - this depends on how many more kids go to a university as a result (I'm assuming that's a good thing), and on economic distortions generated by the cost. Meh.
NDP: Wants to cap credit card interest at prime+5% (8% currently) and to regulate credit card transaction fees. Just the interest rate cap will nab something on the order of $10 billion from credit card companies. Think about how much we'll all save - a wonderful free lunch! Whaaaa?
The credit card industry may generate high profits, but it also requires lots of capital. The question is how much excess profits it generates - i.e. profits over and above what all that capital would generate if invested elsewhere. The answer is, most probably, much less than $10 billion. After all, if offering cards were that profitable, banks would be falling over each other to give cards with better terms in order to attract more customers.
If only credit cards with 8% interest and low transaction fees can be offered, then:
1. there will be a lot fewer of them;
2. those that exist will have little or no rewards, and high annual fees.
Canadians will then have two choices:
- pony up that big annual fee up front; or
- use debit, keep checking their chequing account balance to make sure balance doesn't run low, and go through the hassles and uncertainty of getting a personal loan when a little extra is needed.
My guess is that few would choose the former option, so the NDP proposal would essentially kill credit cards in Canada. Most Canadians would simply end up losing the convenience of revolving credit and probably paying a bunch of extra bank fees instead of credit card interest. The NDP is probably smart enough to know this. Part of the party may even think that getting rid of credit cards is a good thing, though I would hope that the majority is not that paternalistic. Most likely, they are banking (probably rightfully so) on enough Canadians being naïve enough to support this policy, knowing full well that they'll never get a chance to implement it.
Wednesday, August 11, 2010
Republicans, Democrats and the Past 40 Years of the US Economy
Figures below refer to US median household income, in 2008 dollars, and come from the US Census Bureau.
How a Republican would see it:
1978: $45,625 one year after Carter takes office
1983: $42,910 (-6% in 5 years) two years after Carter leaves office
1989: $48,463 (+13% in 6 years) the year Reagan leaves office, and just before Bush Sr. betrays Reagan by raising taxes
2004: $50,535 (+4% in 15 years) three years after Clinton leaves office
2007: $52,163 (+3% in 3 years) just before the financial crisis caused by government intervention in the mortgage market
How a Democrat would see it:
1969: $43,557 the year Nixon takes office
1976: $43,649 (0% in 7 years) the last year of the Ford presidency
1979: $45,498 (+4% in 3 years) the 3rd year of the Carter presidency, just before the Fed got serious about inflation
1993: $45,839 (+1% in 14 years) the year Clinton takes office
2000: $52,500 (+15% in 7 years) the last year of the Clinton presidency
2008: $50,303 (-4% in 8 years) the last year of the Bush presidency
The truth, of course, is somewhere in the middle. Nixon/Ford were unlucky to face the Oil Crisis; the Fed's inflation fighting destroyed Carter's record and gave Reagan an artificially low base to start from; Bush Sr. had to raise taxes due to Reagan's deficits; Clinton probably benefited from Reagan deregulation; Bush Jr. cannot be held solely, or perhaps even mainly, responsible for the financial crisis, which had roots in the Reagan reforms and in the Fed's actions mitigating the bursting of the Clinton tech bubble.
Given this history, you can be sure that 25 years from now, people will still be arguing whether the sluggishness of the current recovery is Bush Jr.'s or Obama's fault.
How a Republican would see it:
1978: $45,625 one year after Carter takes office
1983: $42,910 (-6% in 5 years) two years after Carter leaves office
1989: $48,463 (+13% in 6 years) the year Reagan leaves office, and just before Bush Sr. betrays Reagan by raising taxes
2004: $50,535 (+4% in 15 years) three years after Clinton leaves office
2007: $52,163 (+3% in 3 years) just before the financial crisis caused by government intervention in the mortgage market
How a Democrat would see it:
1969: $43,557 the year Nixon takes office
1976: $43,649 (0% in 7 years) the last year of the Ford presidency
1979: $45,498 (+4% in 3 years) the 3rd year of the Carter presidency, just before the Fed got serious about inflation
1993: $45,839 (+1% in 14 years) the year Clinton takes office
2000: $52,500 (+15% in 7 years) the last year of the Clinton presidency
2008: $50,303 (-4% in 8 years) the last year of the Bush presidency
The truth, of course, is somewhere in the middle. Nixon/Ford were unlucky to face the Oil Crisis; the Fed's inflation fighting destroyed Carter's record and gave Reagan an artificially low base to start from; Bush Sr. had to raise taxes due to Reagan's deficits; Clinton probably benefited from Reagan deregulation; Bush Jr. cannot be held solely, or perhaps even mainly, responsible for the financial crisis, which had roots in the Reagan reforms and in the Fed's actions mitigating the bursting of the Clinton tech bubble.
Given this history, you can be sure that 25 years from now, people will still be arguing whether the sluggishness of the current recovery is Bush Jr.'s or Obama's fault.
Tuesday, August 3, 2010
Conservatives and Statistics
A lot of people think that the Conservatives are getting rid of the mandatory census long form to deliberately produce unreliable data that cannot be used to attack their policies. I don't think the Tories are that devious - they are probably just incompetent with data, and therefore don't appreciate the value of accuracy.
For example, in the Stockwell Day crime flap today, we got several indications that the Tory cabinet sucks with data - they fail to use it correctly even when it supports their case:
- Day did not bother producing any data to back up his assertion that crime is actually increasing in Canada (despite a drop in reported crimes) because more crimes are going unreported to police.
- Later, his colleague Rob Nicholson came to the rescue with a complete non sequitur, stating that 34% of crime in Canada go unreported, without mentioning whether the proportion has gone up.
- Upon examining the actual 2004 Statistics Canada report, one realizes that 34% is actually the proportion of crime that is reported, and in fact 64% of crime is unreported (with 2% unknown). [By the way, the AP seems to have done the verification, while the CBC just reported Nicholson's statement. (Hopefully this will have been fixed by the time you click on the link.) Journalistic rigour, CBC?]
- That 34% reported crime figure is down from 37% in the previous report for 1999, which is itself down from 42% in 1993.
So the data suggests that indeed, an increasing proportion of crime is going unreported. But the Tory ministers either didn't bother with it, or stated the level of crime reporting both erroneously AND without referring to the time trend, which is required to make their case. You really wonder how these people made it through university.
By the way, the next report, covering 2009, is due next month, so we're debating these figures exactly at the time where we have the most outdated data. Are the Tories afraid that the rate of crime reporting has stopped decreasing? Again, my guess is that they were instead simply guided by anecdotal evidence, electoral interest and ideology.
Besides, in the 1999 report, StatCan suggests that part of the decrease in crime reporting may be driven by lower damage in property crimes (smaller proportion of $1,000+ cases and bigger proportion below $100) and higher insurance deductibles: many people won't bother reporting a theft if they wouldn't get reimbursed anyway. In fact, reporting of violent crime has increased from 31% to 33% between 1999 and 2004.
So even if one believes that crime incidence has increased, it's unclear that we should be worried about it: serious crime appears to be decreasing, so it may well be that the overall social harm from crime is also decreasing. And even if one agrees that crime is harming Canadians more than before, it's another logical leap to conclude that we should build more prisons. After all, Québec, with its relatively light approach to punishment, has much less violent crime than the rest of the country. (Of course, you could argue that the causation runs the other way, but the point is that it's not at all clear that more punishment leads to less crime. What is clear is that prisons cost money.)
But, even given supportive data, Conservative ministers are unable to craft a coherent argument for the simple proposition that crime incidence has increased. Is it any surprise that these people don't think much of weakening the census?
For example, in the Stockwell Day crime flap today, we got several indications that the Tory cabinet sucks with data - they fail to use it correctly even when it supports their case:
- Day did not bother producing any data to back up his assertion that crime is actually increasing in Canada (despite a drop in reported crimes) because more crimes are going unreported to police.
- Later, his colleague Rob Nicholson came to the rescue with a complete non sequitur, stating that 34% of crime in Canada go unreported, without mentioning whether the proportion has gone up.
- Upon examining the actual 2004 Statistics Canada report, one realizes that 34% is actually the proportion of crime that is reported, and in fact 64% of crime is unreported (with 2% unknown). [By the way, the AP seems to have done the verification, while the CBC just reported Nicholson's statement. (Hopefully this will have been fixed by the time you click on the link.) Journalistic rigour, CBC?]
- That 34% reported crime figure is down from 37% in the previous report for 1999, which is itself down from 42% in 1993.
So the data suggests that indeed, an increasing proportion of crime is going unreported. But the Tory ministers either didn't bother with it, or stated the level of crime reporting both erroneously AND without referring to the time trend, which is required to make their case. You really wonder how these people made it through university.
By the way, the next report, covering 2009, is due next month, so we're debating these figures exactly at the time where we have the most outdated data. Are the Tories afraid that the rate of crime reporting has stopped decreasing? Again, my guess is that they were instead simply guided by anecdotal evidence, electoral interest and ideology.
Besides, in the 1999 report, StatCan suggests that part of the decrease in crime reporting may be driven by lower damage in property crimes (smaller proportion of $1,000+ cases and bigger proportion below $100) and higher insurance deductibles: many people won't bother reporting a theft if they wouldn't get reimbursed anyway. In fact, reporting of violent crime has increased from 31% to 33% between 1999 and 2004.
So even if one believes that crime incidence has increased, it's unclear that we should be worried about it: serious crime appears to be decreasing, so it may well be that the overall social harm from crime is also decreasing. And even if one agrees that crime is harming Canadians more than before, it's another logical leap to conclude that we should build more prisons. After all, Québec, with its relatively light approach to punishment, has much less violent crime than the rest of the country. (Of course, you could argue that the causation runs the other way, but the point is that it's not at all clear that more punishment leads to less crime. What is clear is that prisons cost money.)
But, even given supportive data, Conservative ministers are unable to craft a coherent argument for the simple proposition that crime incidence has increased. Is it any surprise that these people don't think much of weakening the census?
Thursday, July 22, 2010
Harper's Tax on Everything
A policy that raises the cost of doing business for a wide range of industries, particularly in rural areas, is going into effect.
"But the Tories are against the carbon tax," you say. Think again. It's the scrapping of the census long form. All kinds of businesses will find it a lot harder to obtain accurate data about their markets. They will either have to incur additional costs to obtain good data, or use worse data and incur the resulting losses. This is particularly true in rural areas, where voluntary data will be especially unreliable due to small sample sizes. And when the cost of doing business rises, we all know who's paying in the end.
But it's much worse than a carbon tax: this policy will actually cost the government money (both directly and indirectly through future poorly targeted policies due to lack of data), and doesn't do anything for the environment (with more forms sent out, it's actually a negative). Plus, you know, Canadians will still have to answer a bunch of questions on the short form, and a whole bunch more on their tax returns. Is it really more personal to tell the government how many rooms are in your house than to tell it how many people live in it, their relation to each other, and exactly how much income of each kind you made? So I fail to see what big privacy gains all this nonsense will get us.
Actually, let me take all this back. Although Harper's imposing a "tax on everything," these actions are actually consistent with the general Conservative strategy: assume Canadians are shortsighted ("Let's cut the GST cuz, you know, it's annoying, even though income taxes harm the economy more") and lazy ("A new carbon tax? Noooooooooooo... I don't want to deal with anything new, even if I'll get tax cuts that compensate for the cost"), and propose policies in consequence. It's worked pretty well so far, so let's congratulate the Tories on their good work, eh?
"But the Tories are against the carbon tax," you say. Think again. It's the scrapping of the census long form. All kinds of businesses will find it a lot harder to obtain accurate data about their markets. They will either have to incur additional costs to obtain good data, or use worse data and incur the resulting losses. This is particularly true in rural areas, where voluntary data will be especially unreliable due to small sample sizes. And when the cost of doing business rises, we all know who's paying in the end.
But it's much worse than a carbon tax: this policy will actually cost the government money (both directly and indirectly through future poorly targeted policies due to lack of data), and doesn't do anything for the environment (with more forms sent out, it's actually a negative). Plus, you know, Canadians will still have to answer a bunch of questions on the short form, and a whole bunch more on their tax returns. Is it really more personal to tell the government how many rooms are in your house than to tell it how many people live in it, their relation to each other, and exactly how much income of each kind you made? So I fail to see what big privacy gains all this nonsense will get us.
Actually, let me take all this back. Although Harper's imposing a "tax on everything," these actions are actually consistent with the general Conservative strategy: assume Canadians are shortsighted ("Let's cut the GST cuz, you know, it's annoying, even though income taxes harm the economy more") and lazy ("A new carbon tax? Noooooooooooo... I don't want to deal with anything new, even if I'll get tax cuts that compensate for the cost"), and propose policies in consequence. It's worked pretty well so far, so let's congratulate the Tories on their good work, eh?
Sunday, July 4, 2010
G7: Good Comparison Group for Canada?
Canada likes to compare itself to other G7 countries on economic matters. Our fiscal situation is better than all 6 of our peers, and our material standard of living is better all but America's. For a decade, no Minister of Finance has seemingly ever missed an opportunity to remind us of this (especially the former). Given that we don't want US-style inequality, there really isn't much to improve, is there?
Unfortunately, G7 comparisons may lead us to unwarranted complacency. Out of 28 OECD countries (there are 31 OECD countries total, but no data for Chile, Mexico and Turkey), Canada ranks a middle-of-the-road 12th for lowest net debt as a percentage of GDP, projected for 2011. All 6 other G7 countries are among the 10 worst offenders. Do we really want to compare ourselves to them?
Most Scandinavian countries, as well as Korea, Australia and New Zealand, have little or negative net debt - the latter meaning that they actually set aside assets over and above their gross debt in anticipation of population aging. We're in a good fiscal position, but with looming increases in pension and health care costs, we're definitely not out of the woods.
In terms of GDP per capita, out of the 33 advanced economies identified by the IMF, Canada ranked 11th in 2008. That's still good, but doesn't sound as great as "second only to the US". (It looks like we stayed 11th in 2009 - Australia passed Canada, but Iceland fell behind - and the IMF thinks we'll still be 11th in 2015.)
Of course, Canada is not quite as resource-rich relative to its population size as Australia or Norway, and there is no way our financial sector could be as large relative to our population as Hong Kong's, Singapore's, Luxembourg's or Switzerland's. We don't want the instability of the Irish model or the inequality of the American model.
But the other two countries in front of us - the Netherlands and Austria - as well as Denmark and Sweden, which closely follow us, can probably provide some lessons: all 4 of them have much larger government sectors than Canada, and yet their economies are just as vibrant as ours. This suggests that Canada has room to become more egalitarian without sacrificing output, or to become richer without sacrificing social justice.
Moreover, Korea and Taiwan, which are rapidly catching up (they are already at Western European standards), have small governments and relatively little inequality (though the latter is increasing there as well). How do they achieve that? Just chalking it up to culture might prevent us from learning valuable lessons.
By all means, the Canadian economy is among the healthiest in the world at this moment, and we can all be proud of that. But although G7 comparisons may suggest that we're head and shoulders above everyone else, we need to remember that the world is more than just the G7, and a few other countries - mainly small Germanic and East Asian ones - have an economic and fiscal situation just as enviable as ours. Complacency is therefore to be avoided if we want to keep Canada among the top. Remember that the next time you come across an international comparison from the Department of Finance!
Unfortunately, G7 comparisons may lead us to unwarranted complacency. Out of 28 OECD countries (there are 31 OECD countries total, but no data for Chile, Mexico and Turkey), Canada ranks a middle-of-the-road 12th for lowest net debt as a percentage of GDP, projected for 2011. All 6 other G7 countries are among the 10 worst offenders. Do we really want to compare ourselves to them?
Most Scandinavian countries, as well as Korea, Australia and New Zealand, have little or negative net debt - the latter meaning that they actually set aside assets over and above their gross debt in anticipation of population aging. We're in a good fiscal position, but with looming increases in pension and health care costs, we're definitely not out of the woods.
In terms of GDP per capita, out of the 33 advanced economies identified by the IMF, Canada ranked 11th in 2008. That's still good, but doesn't sound as great as "second only to the US". (It looks like we stayed 11th in 2009 - Australia passed Canada, but Iceland fell behind - and the IMF thinks we'll still be 11th in 2015.)
Of course, Canada is not quite as resource-rich relative to its population size as Australia or Norway, and there is no way our financial sector could be as large relative to our population as Hong Kong's, Singapore's, Luxembourg's or Switzerland's. We don't want the instability of the Irish model or the inequality of the American model.
But the other two countries in front of us - the Netherlands and Austria - as well as Denmark and Sweden, which closely follow us, can probably provide some lessons: all 4 of them have much larger government sectors than Canada, and yet their economies are just as vibrant as ours. This suggests that Canada has room to become more egalitarian without sacrificing output, or to become richer without sacrificing social justice.
Moreover, Korea and Taiwan, which are rapidly catching up (they are already at Western European standards), have small governments and relatively little inequality (though the latter is increasing there as well). How do they achieve that? Just chalking it up to culture might prevent us from learning valuable lessons.
By all means, the Canadian economy is among the healthiest in the world at this moment, and we can all be proud of that. But although G7 comparisons may suggest that we're head and shoulders above everyone else, we need to remember that the world is more than just the G7, and a few other countries - mainly small Germanic and East Asian ones - have an economic and fiscal situation just as enviable as ours. Complacency is therefore to be avoided if we want to keep Canada among the top. Remember that the next time you come across an international comparison from the Department of Finance!
Thursday, July 1, 2010
Is it the Time for Austerity?
Most mainstream economists' views either fall into one of these camps, or mix a few of these arguments:
1. Yes: Keynesian economics is wrong, and there was never a need for fiscal stimulus.
2. Yes: The recovery is underway, so governments can now withdraw stimulus.
3. Yes: Governments can't afford to keep stimulating the economy, either because: a) investors will soon balk at lending them money; or b) when the recovery gets underway, interest rates will rise, and big debts will prove too large a burden.
4. Yes: Monetary policy can still do more to stimulate the economy, and should do the job now that the initial fiscal stimulus has prevented a depression.
5. No: With short term interest rates at 0%, monetary policy has hit its limit, so fiscal policy is needed.
6. No: For many countries like the U.S., Canada and Germany, governments can borrow very cheaply. Thus the benefits of austerity are little (investors won't balk at lending them any time soon), while the costs could be tremendous if fiscal restraint thwarts recovery.
7. No: The governments that can borrow cheaply now should take advantage of the situation and invest in the future (education, infrastructure, etc.).
I'm not a macroeconomist, but I do know a thing or two about this topic. Of these arguments, I'm most sympathetic to 3 and 5. Basically, I'm torn: the economy is still way below potential, and the recovery in most countries does not look robust. Monetary policy can probably do more by driving down long-term interest rates, but I don't think that's enough. I do believe that fiscal stimulus works, but there are two major drawbacks to it:
- If too much debt is accumulated, that can nip recovery in the bud: when the economy turns up, interest rates will rise, and the government will run into huge trouble. So even though interest rates are low now, fiscal stimulus still carries a large cost.
- If intense stimulus lasts for too long, the structure of the economy may shift toward sectors that cater to the government; this would slow recovery, as structural change back to "normal" would be required. Stimulus through tax cuts rather than spending can mitigate this problem, but tax cuts fail if people simply save the money.
Overall, since the recovery is fairly strong in Canada, the government should probably adopt a wait-and-see attitude, which it seems to be doing. However, the right policy for Canada is probably not the right one for the rest of the Western world, so Harper may have erred in urging restraint from other countries...
1. Yes: Keynesian economics is wrong, and there was never a need for fiscal stimulus.
2. Yes: The recovery is underway, so governments can now withdraw stimulus.
3. Yes: Governments can't afford to keep stimulating the economy, either because: a) investors will soon balk at lending them money; or b) when the recovery gets underway, interest rates will rise, and big debts will prove too large a burden.
4. Yes: Monetary policy can still do more to stimulate the economy, and should do the job now that the initial fiscal stimulus has prevented a depression.
5. No: With short term interest rates at 0%, monetary policy has hit its limit, so fiscal policy is needed.
6. No: For many countries like the U.S., Canada and Germany, governments can borrow very cheaply. Thus the benefits of austerity are little (investors won't balk at lending them any time soon), while the costs could be tremendous if fiscal restraint thwarts recovery.
7. No: The governments that can borrow cheaply now should take advantage of the situation and invest in the future (education, infrastructure, etc.).
I'm not a macroeconomist, but I do know a thing or two about this topic. Of these arguments, I'm most sympathetic to 3 and 5. Basically, I'm torn: the economy is still way below potential, and the recovery in most countries does not look robust. Monetary policy can probably do more by driving down long-term interest rates, but I don't think that's enough. I do believe that fiscal stimulus works, but there are two major drawbacks to it:
- If too much debt is accumulated, that can nip recovery in the bud: when the economy turns up, interest rates will rise, and the government will run into huge trouble. So even though interest rates are low now, fiscal stimulus still carries a large cost.
- If intense stimulus lasts for too long, the structure of the economy may shift toward sectors that cater to the government; this would slow recovery, as structural change back to "normal" would be required. Stimulus through tax cuts rather than spending can mitigate this problem, but tax cuts fail if people simply save the money.
Overall, since the recovery is fairly strong in Canada, the government should probably adopt a wait-and-see attitude, which it seems to be doing. However, the right policy for Canada is probably not the right one for the rest of the Western world, so Harper may have erred in urging restraint from other countries...
Friday, June 25, 2010
A New Economic Era
Here's a simplistic description of the North American economy since 1945:
Late forties, fifties, sixties: Post-war boom due to pent-up demand (forced saving during the war), rebuilding in Europe. Artificially extended into the 60s by overly lax monetary policy.
Seventies, early eighties: Instability due to inflation - it's a hangover from the 60s' overheating - compounded by the oil shock. Would have been much more painful if it weren't for favourable demographic circumstances (baby boomers trickling into the labor market).
Mid and late eighties, nineties, naughties: Boom due to favourable demographics (baby boomers form a large experienced workforce) and a large technological shock. Moderated in Canada by sky-high federal deficits, which hurt investment. Artificially extended into the 00s by debt run-up.
So what happens now? Just like during 1970-1983, we'll have to mop up a mess. Except this time, it's not inflation, but debt. The issue is different, so the policies will differ as well, but the big picture is the same: we've front-loaded growth in the past decade, and now's the time to pay for it. On the plus side, we won't necessarily have to endure a crisis like the Oil Shock to make things worse. But the minus side dominates: rather than favourable demographics, we'll have terrible ones, as baby boomers start retiring.
Some random predictions - surely some of them will be wrong, but the big picture should hold:
- 3% growth will not be standard anymore: the new normal will be closer to 2%. (To be sure, during the recovery, we may grow for a while at 3% or more, but it won't be sustained.) In Europe, it may be 1-1.5%.
- Health care costs will keep exploding for a decade or so, but will eventually slow. This is because eventually, governments around the world will not be able to afford year after year the slew of new expensive treatments we now invent annually. Health care innovation will therefore slow due to lack of demand, or at least partly shift from seeking to prolong life to seeking to cut costs. So while the current catastrophic long-term cost projections won't come true, neither will the long-term life expectancy projections.
- Current government pension and/or health care promises cannot be fulfilled to their full extent (maybe not in Canada, where the pension system is on relatively firm footing, but in many other Western countries). One or more of the following types of political upheaval will occur in most countries:
1. Prescient politicians try to prevent this, and encounter fierce resistance (e.g. France, even though the proposed rise in retirement age is actually just a timid first step);
2. Young workers realize this, and there is a generational struggle, possibly causing a political realignment;
3. Crisis point is reached, and these benefits are abruptly reduced, causing much pain to those that didn't see it coming.
- Unless we end up like Japan, real interest rates will rise sharply at some point: in the next 20 years, a lot more people will be running down their retirement savings in the West. Moreover, in China, the coming generation of workers at the top of their earning potential will save less due to cultural change, and the Central Bank will (very gradually) let its currency rise and stop buying foreign assets as quickly as now. As that happens, stocks will do poorly, until interest rates stabilize at their new, higher level. At that point, stocks should turn up, but that might be too late for some.
- Once interest rates rise (or if we end up like Japan), investment, and therefore innovation will slow. That 2% growth norm may endure even after we finish mopping up this debt mess.
- There will be another bubble, but it won't be as big because there will be less easy money floating around.
- Some governments will be tempted to inflate their (and their citizens') debt away. Those that do so modestly may get away with it. Those that are too overt about it may lose control over inflation, though the countries most at risk of doing that are in the Eurozone, so they can't do it. The U.S. has some leeway due to its reserve currency status, and if inflation returns while unemployment stays high, the Fed will likely let inflation rise to 3-4% (instead of 2-3% as it has done over the past 20 years).
How places around the world might do in the next decade:
- The U.S. will have persistent high unemployment, a slow recovery that won't feel like one, followed by slow growth that will feel like a prolonged recession.
- Canada's growth will also be slow, but a bit less so than America's, and the gap in GDP per capita may diminish.
- Québec leaders will try some timid reforms, encounter disproportionate public protests, and back down some of the time.
- French leaders will try some ridiculously timid reforms, encounter completely disproportionate public protests, and back down most of the time.
- Italy, Greece and Portugal will stagnate.
- The British Isles will stagnate for a few years, but then slow growth will resume.
- It's a crapshoot whether Spain will look like Italy or the UK.
- Germany shouldn't stagnate, but might anyway due to their obsession with austerity.
- Japan will have a third lost decade.
- Korea, Taiwan, Hong Kong and Singapore will keep growing smartly (if a bit slower than before). By the end of the decade, HK and Singapore will be richer than the US (on a per capita basis - some say Singapore already is), while Korea and Taiwan will be richer than Western Europe for the first time since at least the Middle Ages.
- Australia will also keep growing at a healthy clip, and will become richer than Canada.
- China's growth will slow. It will also still be among the fastest in the world. China's trade balance will narrow, the yuan will very slowly appreciate, and in 10 years, the phrase "Chinese consumers" will often be heard in Western newscasts.
Late forties, fifties, sixties: Post-war boom due to pent-up demand (forced saving during the war), rebuilding in Europe. Artificially extended into the 60s by overly lax monetary policy.
Seventies, early eighties: Instability due to inflation - it's a hangover from the 60s' overheating - compounded by the oil shock. Would have been much more painful if it weren't for favourable demographic circumstances (baby boomers trickling into the labor market).
Mid and late eighties, nineties, naughties: Boom due to favourable demographics (baby boomers form a large experienced workforce) and a large technological shock. Moderated in Canada by sky-high federal deficits, which hurt investment. Artificially extended into the 00s by debt run-up.
So what happens now? Just like during 1970-1983, we'll have to mop up a mess. Except this time, it's not inflation, but debt. The issue is different, so the policies will differ as well, but the big picture is the same: we've front-loaded growth in the past decade, and now's the time to pay for it. On the plus side, we won't necessarily have to endure a crisis like the Oil Shock to make things worse. But the minus side dominates: rather than favourable demographics, we'll have terrible ones, as baby boomers start retiring.
Some random predictions - surely some of them will be wrong, but the big picture should hold:
- 3% growth will not be standard anymore: the new normal will be closer to 2%. (To be sure, during the recovery, we may grow for a while at 3% or more, but it won't be sustained.) In Europe, it may be 1-1.5%.
- Health care costs will keep exploding for a decade or so, but will eventually slow. This is because eventually, governments around the world will not be able to afford year after year the slew of new expensive treatments we now invent annually. Health care innovation will therefore slow due to lack of demand, or at least partly shift from seeking to prolong life to seeking to cut costs. So while the current catastrophic long-term cost projections won't come true, neither will the long-term life expectancy projections.
- Current government pension and/or health care promises cannot be fulfilled to their full extent (maybe not in Canada, where the pension system is on relatively firm footing, but in many other Western countries). One or more of the following types of political upheaval will occur in most countries:
1. Prescient politicians try to prevent this, and encounter fierce resistance (e.g. France, even though the proposed rise in retirement age is actually just a timid first step);
2. Young workers realize this, and there is a generational struggle, possibly causing a political realignment;
3. Crisis point is reached, and these benefits are abruptly reduced, causing much pain to those that didn't see it coming.
- Unless we end up like Japan, real interest rates will rise sharply at some point: in the next 20 years, a lot more people will be running down their retirement savings in the West. Moreover, in China, the coming generation of workers at the top of their earning potential will save less due to cultural change, and the Central Bank will (very gradually) let its currency rise and stop buying foreign assets as quickly as now. As that happens, stocks will do poorly, until interest rates stabilize at their new, higher level. At that point, stocks should turn up, but that might be too late for some.
- Once interest rates rise (or if we end up like Japan), investment, and therefore innovation will slow. That 2% growth norm may endure even after we finish mopping up this debt mess.
- There will be another bubble, but it won't be as big because there will be less easy money floating around.
- Some governments will be tempted to inflate their (and their citizens') debt away. Those that do so modestly may get away with it. Those that are too overt about it may lose control over inflation, though the countries most at risk of doing that are in the Eurozone, so they can't do it. The U.S. has some leeway due to its reserve currency status, and if inflation returns while unemployment stays high, the Fed will likely let inflation rise to 3-4% (instead of 2-3% as it has done over the past 20 years).
How places around the world might do in the next decade:
- The U.S. will have persistent high unemployment, a slow recovery that won't feel like one, followed by slow growth that will feel like a prolonged recession.
- Canada's growth will also be slow, but a bit less so than America's, and the gap in GDP per capita may diminish.
- Québec leaders will try some timid reforms, encounter disproportionate public protests, and back down some of the time.
- French leaders will try some ridiculously timid reforms, encounter completely disproportionate public protests, and back down most of the time.
- Italy, Greece and Portugal will stagnate.
- The British Isles will stagnate for a few years, but then slow growth will resume.
- It's a crapshoot whether Spain will look like Italy or the UK.
- Germany shouldn't stagnate, but might anyway due to their obsession with austerity.
- Japan will have a third lost decade.
- Korea, Taiwan, Hong Kong and Singapore will keep growing smartly (if a bit slower than before). By the end of the decade, HK and Singapore will be richer than the US (on a per capita basis - some say Singapore already is), while Korea and Taiwan will be richer than Western Europe for the first time since at least the Middle Ages.
- Australia will also keep growing at a healthy clip, and will become richer than Canada.
- China's growth will slow. It will also still be among the fastest in the world. China's trade balance will narrow, the yuan will very slowly appreciate, and in 10 years, the phrase "Chinese consumers" will often be heard in Western newscasts.
Wednesday, June 23, 2010
Canadian Dissonance
Canadians want courageous politicians that lead us toward our goals. Or do we?
1. We want to be prosperous in the long run. This means fostering economic growth while remaining fiscally responsible. In other words, we need to raise taxes or cut spending (though one can argue with the timing) while hurting growth as little as possible. (Fortunately, thanks to previous austerity, we don't need to do so nearly as much as any other ex-G7 country.)
2. We want to maintain our system of public universal health care. Since health care innovation and population aging push medical costs up faster than nominal economic growth, over time, a greater portion of our income will have to go toward health care. Thus, even if our governments cut other spending, it will be difficult to cut spending overall.
Combine 1 and 2, and it's clear that our governments need to find a way to raise taxes without choking the economy. Apart from Pigovian taxes (taxes on activities that hurt bystanders - we'll come back to that in a second), consumption taxes are widely considered by economists to make less damage per dollar raised than taxes on other things (e.g. wages, investment income, profit, trade). And among consumption taxes, designs that treat all sectors of the economy equitably (i.e. that do not tax certain goods twice and exempt others) cause less harm.
3. We want to leave a decent environment to future generations. If the scientific consensus is correct, this will involve drastically cutting our carbon emissions. Although Canada doing so on its own is unlikely to make a difference, if we find a way to aggressively cut our emissions, we may inspire other countries to do so. After all, if small European countries had not already taken action, the large ones would likely be farther away from doing so, and the U.S. might not even be talking about it!
The problem with carbon emissions is, of course, that if polluters and their clients gain from a transaction, they will engage in it even if everyone else loses. If the loss outweighs the gain, that's a bad thing for overall welfare. The solution is clear: incorporate the costs borne by others into the transaction, and then, automatically, only transactions where gains outweigh losses will occur.
The two solutions that I'm referring to above are, of course, value-added taxes (i.e. GST/HST) and carbon taxes. We all know what happens to politicians that enact/increase those levies. Why?
Surely, we Canadians are not sabotaging ourselves willfully. We should also be smart enough to understand what's going on: we do have one of the world's best elementary and secondary school systems, and some other countries (mainly small ones in Northern Europe) did get it. Maybe we're so smart we found something better? If that's true, I must be out of the loop.
No, most Canadians simply do not get what's going on. Why?
1. Too many Canadians are lazy with regards to their civic duty. Canadians are also very cynical about politics. But cynicism can be a good thing - pushing people to think critically about what the politicians are saying. Unfortunately, that cynicism is coupled with laziness. Result: "I don't trust that politician AND I'll too lazy to find out if what he says is right. So I'm just going to go with my gut feeling." Of course, other than spoiled food and serious emotional distress, taxes rank right up there in things that don't sit well with the gut.
2. Our media are lazy. You want to read a serious article about the costs and benefits of consumption and carbon taxes? Good luck. Either you will not find anything more than 5 paragraphs long, or you will find a seemingly deep article until you realize that 90% of the sources are either unqualified or have a stake in the issue. On the HST debate, the CBC's approach was to mostly invite politicians and their staff, people affiliated with organizations/think tanks aligned with political parties, or, in one occasion, a "marketing expert" (who, from the looks of it, may have failed Econ 101) to analyze the likely effects of harmonization. Neutral economists? "Nah! They're kind of boring, don't come to us, and may take multiple calls or emails to get a hold of. So why bother?" And of course, the pundits spend 5 times more time talking about how complex the policies are and what the political ramifications might be than it takes to actually break down and explain the main pros and cons.
What's going on in Ottawa now? Probably at least two thirds of our politicians (and certainly all the leaders) know that raising the GST and/or instituting a carbon tax would benefit the country by reducing the deficit, creating room to cut other taxes and/or raising money for government programs at relatively low cost. Not a single one of them is going to champion these ideas anytime soon, and all will pounce on anyone that might be foolish enough to do so.
1. We want to be prosperous in the long run. This means fostering economic growth while remaining fiscally responsible. In other words, we need to raise taxes or cut spending (though one can argue with the timing) while hurting growth as little as possible. (Fortunately, thanks to previous austerity, we don't need to do so nearly as much as any other ex-G7 country.)
2. We want to maintain our system of public universal health care. Since health care innovation and population aging push medical costs up faster than nominal economic growth, over time, a greater portion of our income will have to go toward health care. Thus, even if our governments cut other spending, it will be difficult to cut spending overall.
Combine 1 and 2, and it's clear that our governments need to find a way to raise taxes without choking the economy. Apart from Pigovian taxes (taxes on activities that hurt bystanders - we'll come back to that in a second), consumption taxes are widely considered by economists to make less damage per dollar raised than taxes on other things (e.g. wages, investment income, profit, trade). And among consumption taxes, designs that treat all sectors of the economy equitably (i.e. that do not tax certain goods twice and exempt others) cause less harm.
3. We want to leave a decent environment to future generations. If the scientific consensus is correct, this will involve drastically cutting our carbon emissions. Although Canada doing so on its own is unlikely to make a difference, if we find a way to aggressively cut our emissions, we may inspire other countries to do so. After all, if small European countries had not already taken action, the large ones would likely be farther away from doing so, and the U.S. might not even be talking about it!
The problem with carbon emissions is, of course, that if polluters and their clients gain from a transaction, they will engage in it even if everyone else loses. If the loss outweighs the gain, that's a bad thing for overall welfare. The solution is clear: incorporate the costs borne by others into the transaction, and then, automatically, only transactions where gains outweigh losses will occur.
The two solutions that I'm referring to above are, of course, value-added taxes (i.e. GST/HST) and carbon taxes. We all know what happens to politicians that enact/increase those levies. Why?
Surely, we Canadians are not sabotaging ourselves willfully. We should also be smart enough to understand what's going on: we do have one of the world's best elementary and secondary school systems, and some other countries (mainly small ones in Northern Europe) did get it. Maybe we're so smart we found something better? If that's true, I must be out of the loop.
No, most Canadians simply do not get what's going on. Why?
1. Too many Canadians are lazy with regards to their civic duty. Canadians are also very cynical about politics. But cynicism can be a good thing - pushing people to think critically about what the politicians are saying. Unfortunately, that cynicism is coupled with laziness. Result: "I don't trust that politician AND I'll too lazy to find out if what he says is right. So I'm just going to go with my gut feeling." Of course, other than spoiled food and serious emotional distress, taxes rank right up there in things that don't sit well with the gut.
2. Our media are lazy. You want to read a serious article about the costs and benefits of consumption and carbon taxes? Good luck. Either you will not find anything more than 5 paragraphs long, or you will find a seemingly deep article until you realize that 90% of the sources are either unqualified or have a stake in the issue. On the HST debate, the CBC's approach was to mostly invite politicians and their staff, people affiliated with organizations/think tanks aligned with political parties, or, in one occasion, a "marketing expert" (who, from the looks of it, may have failed Econ 101) to analyze the likely effects of harmonization. Neutral economists? "Nah! They're kind of boring, don't come to us, and may take multiple calls or emails to get a hold of. So why bother?" And of course, the pundits spend 5 times more time talking about how complex the policies are and what the political ramifications might be than it takes to actually break down and explain the main pros and cons.
What's going on in Ottawa now? Probably at least two thirds of our politicians (and certainly all the leaders) know that raising the GST and/or instituting a carbon tax would benefit the country by reducing the deficit, creating room to cut other taxes and/or raising money for government programs at relatively low cost. Not a single one of them is going to champion these ideas anytime soon, and all will pounce on anyone that might be foolish enough to do so.
Wednesday, March 24, 2010
A Redistribution Proposal
Riding By Riding has posted a discussion about the growth of the House of Commons under rules proposed by the Harper government, and concludes that they would make Parliament add 20 seats every decade (after an initial 36-seat increase). That's a lot more than the roughly 7-seat decennial increase under current law, and in my opinion a bit too much - the House would have almost 400 seats in less than 25 years! Below, I propose a middle ground solution.
To fix ideas, currently, all provinces except ON, AB and BC are overrepresented. Their populations also tend to grow more slowly than the national population. Therefore, their number of seats should not increase. Under neither current rules nor the Conservative proposal would their seats decrease, and I don't see any political will to make those provinces swallow the pill of losing seats. Thus, any feasible redistribution scheme would freeze the number of seats in all provinces but ON, AB and BC, and my proposal is no exception.
Under current rules, ON, AB and BC's number of seats is simply their share of the 10-province population multiplied by 279, rounded to the nearest integer (as is everything below).
Under the Conservative proposal, it would be their "share" of Québec's population (i.e. 160% if they have 60% more people than Québec) times 75 (Québec's number of seats).
Under my proposal, we would first determine the House's size so that Québec's 75-seat representation is proportional (i.e. the House size is to 75 what Canada's population is to Québec's). Then ON, AB and BC would divvy up the House less 138 seats (number of seats held by other provinces and the territories) proportionally to their population.
None of these approaches is obviously better than the others. Current law basically assumes a 282-seat House, but gives out extra seats so that no province loses any. The Tory proposal ensures equality between the 4 largest provinces, who would be equally underrepresented. My proposal ensures that Québec, as a nation recognized by the House, is proportionally represented, while AB, BC and ON are less underrepresented than under current rules, but more so than under the Tory proposal.
However, I do believe that my proposal has many practical benefits:
- Just like the Tory idea, it reduces AB, BC and ON's underrepresentation relative to current rules.
- It does not grow the House as quickly as the Conservative proposal. For example, using Statistics Canada's October 2009 population estimates, the Tory plan would result in a 341-seat House (+33), while mine would create a 323-seat House (+15). (In case you're wondering, under current rules, it'd be 314 seats.) Down the road, extrapolating the population growth rates of Québec and Canada from 2005-2009, the House would expand by 3-4% per decade, or around 10 seats, which is quite reasonable.
- It should be acceptable to the Bloc and Quebecers in general: yes, Québec would go from being overrepresented to proportionally represented, but it'd be hard to argue that the latter is unfair. Under the Tory proposal, Québec is singled out as the only currently overrepresented province to become underrepresented.
To give you an idea of what things would look like, here is how many seats each of the 3 underrepresented provinces would get, based on October 2009 population estimates, under current law, the Tory proposal, and my idea respectively:
ON 108 125 114
AB 31 35 32
BC 37 43 39
Thus, my proposal is roughly 2/3 current law and 1/3 Tory proposal.
What do you think?
To fix ideas, currently, all provinces except ON, AB and BC are overrepresented. Their populations also tend to grow more slowly than the national population. Therefore, their number of seats should not increase. Under neither current rules nor the Conservative proposal would their seats decrease, and I don't see any political will to make those provinces swallow the pill of losing seats. Thus, any feasible redistribution scheme would freeze the number of seats in all provinces but ON, AB and BC, and my proposal is no exception.
Under current rules, ON, AB and BC's number of seats is simply their share of the 10-province population multiplied by 279, rounded to the nearest integer (as is everything below).
Under the Conservative proposal, it would be their "share" of Québec's population (i.e. 160% if they have 60% more people than Québec) times 75 (Québec's number of seats).
Under my proposal, we would first determine the House's size so that Québec's 75-seat representation is proportional (i.e. the House size is to 75 what Canada's population is to Québec's). Then ON, AB and BC would divvy up the House less 138 seats (number of seats held by other provinces and the territories) proportionally to their population.
None of these approaches is obviously better than the others. Current law basically assumes a 282-seat House, but gives out extra seats so that no province loses any. The Tory proposal ensures equality between the 4 largest provinces, who would be equally underrepresented. My proposal ensures that Québec, as a nation recognized by the House, is proportionally represented, while AB, BC and ON are less underrepresented than under current rules, but more so than under the Tory proposal.
However, I do believe that my proposal has many practical benefits:
- Just like the Tory idea, it reduces AB, BC and ON's underrepresentation relative to current rules.
- It does not grow the House as quickly as the Conservative proposal. For example, using Statistics Canada's October 2009 population estimates, the Tory plan would result in a 341-seat House (+33), while mine would create a 323-seat House (+15). (In case you're wondering, under current rules, it'd be 314 seats.) Down the road, extrapolating the population growth rates of Québec and Canada from 2005-2009, the House would expand by 3-4% per decade, or around 10 seats, which is quite reasonable.
- It should be acceptable to the Bloc and Quebecers in general: yes, Québec would go from being overrepresented to proportionally represented, but it'd be hard to argue that the latter is unfair. Under the Tory proposal, Québec is singled out as the only currently overrepresented province to become underrepresented.
To give you an idea of what things would look like, here is how many seats each of the 3 underrepresented provinces would get, based on October 2009 population estimates, under current law, the Tory proposal, and my idea respectively:
ON 108 125 114
AB 31 35 32
BC 37 43 39
Thus, my proposal is roughly 2/3 current law and 1/3 Tory proposal.
What do you think?
Thursday, March 18, 2010
Quick Word about Québec
If you think we have a crappy federal government with no good alternatives, look at Québec and rejoice!
The Charest government has been refusing to hold a public inquiry on the corrupt construction sector, whose firms and unions have infiltrated virtually all spheres of public decision-making, or so it seems. Meanwhile, the healthcare system is once again in crisis - almost 7 years after the Québec Liberals were elected to fix it, and, much like in Ottawa, there is no credible plan to erase the deficit. The federal Tories might be just as limp and complacent (and much more gimmicky and juvenile), but at least they don't face any crisis nearly as important as the healthcare or construction ones in Québec.
The PQ is rightfully demanding a public inquiry on the construction sector. But the supposedly substantive things it has been doing are rather ridiculous:
- reviving a debate about the display of religious symbols by public employees to take the populist islamophobic vote away from the dying ADQ (that's surely Québec's biggest problem now!);
- saying right-wing (for Québec) sounding things (e.g. the PQ will now focus on wealth creation through the individual) while proposing the same old big government programs.
The federal Liberals might not have a concrete plan for a liberal Canada, but the PQ, after deciding that it will not ask for a referendum for the foreseeable future, doesn't even know what kind of Québec it wants; as a result, the PQ is trying to be a populist progressive individualist socialist party.
So in Ottawa, we have a vaguely centre-right party and a vaguely centre-left party. Neither of them has a crisp plan, but you can kind of see the direction in which the country would move - at an excruciatingly slow pace - under either of them. In Quebec City, it's worse: literally a party that stands for nothing versus a party that stands for everything - a choice between complete paralysis and a random direction.
Still, 99% of Quebecers (and I include myself in the bunch) are perfectly happy now, due to the Habs' 6-game winning streak!
The Charest government has been refusing to hold a public inquiry on the corrupt construction sector, whose firms and unions have infiltrated virtually all spheres of public decision-making, or so it seems. Meanwhile, the healthcare system is once again in crisis - almost 7 years after the Québec Liberals were elected to fix it, and, much like in Ottawa, there is no credible plan to erase the deficit. The federal Tories might be just as limp and complacent (and much more gimmicky and juvenile), but at least they don't face any crisis nearly as important as the healthcare or construction ones in Québec.
The PQ is rightfully demanding a public inquiry on the construction sector. But the supposedly substantive things it has been doing are rather ridiculous:
- reviving a debate about the display of religious symbols by public employees to take the populist islamophobic vote away from the dying ADQ (that's surely Québec's biggest problem now!);
- saying right-wing (for Québec) sounding things (e.g. the PQ will now focus on wealth creation through the individual) while proposing the same old big government programs.
The federal Liberals might not have a concrete plan for a liberal Canada, but the PQ, after deciding that it will not ask for a referendum for the foreseeable future, doesn't even know what kind of Québec it wants; as a result, the PQ is trying to be a populist progressive individualist socialist party.
So in Ottawa, we have a vaguely centre-right party and a vaguely centre-left party. Neither of them has a crisp plan, but you can kind of see the direction in which the country would move - at an excruciatingly slow pace - under either of them. In Quebec City, it's worse: literally a party that stands for nothing versus a party that stands for everything - a choice between complete paralysis and a random direction.
Still, 99% of Quebecers (and I include myself in the bunch) are perfectly happy now, due to the Habs' 6-game winning streak!
Friday, July 24, 2009
Where the jobs actually are
The New York Times argues in this editorial that "with low-wage work expected to be the most plentiful in the years to come, raising the minimum wage and growth opportunities should be a priority of the White House." (Quote is not in the article, but in the snippet provided when I shared this article on Facebook.) It states that "according to the Labor Department, 5 of the 10 occupations expected to add the most jobs through 2016 are 'very low paying,' up to a maximum of about $22,000 a year. They include retail sales jobs and home health aides. Another 3 of the 10 are 'low paying,' from roughly $22,000 to $31,000, including customer-service representatives, general office clerks and nurses’ aides."
This seemed fishy to me, so I went ahead and checked out the actual Labor Department data. It turns out that by definition, low-paying job categories tend to be larger. To see why this is a problem, consider the following example. Suppose for simplicity that there are 1M low-paying jobs divided into 10 categories, and 1M high-paying jobs divided into 100 categories. Also suppose that the low-paying categories are projected to grow by 5%, and high-paying ones by 20%. Then each low-paying category would add 5,000 jobs, while each high-paying category would only add 2,000 jobs, so by the NY Times' methodology, we'd reach the false conclusion that low-paying industries are expanding faster.
The actual data is not as stark, but the pattern is definitely there. In fact, “very low” paying occupations are projected to add 3.65M jobs from 2006 to 2016, “low” paying 3.38M, “high” paying 3.34M, and “very high” paying 5.22M. These classifications are quartiles, each containing occupations representing 1/4 of workers in 2006. So as you can see, the data cited by the NY Times actually undermines their point, since "very high" paying jobs are projected to grow the fastest, with all other categories growing about equally fast. Sadly, this statistical sleight of hand forms the basis of much of their argument, so the entire editorial is pretty worthless.
This is not to say that I oppose a higher minimum wage in the U.S. or Canada: I haven't made up my mind on the issue. But what this data suggests is that, in fact, education needs to be a high priority in the U.S., since it is jobs in the top quartile, i.e. those that require the most skills, that are going to be created the fastest over the next few years. And I doubt that the situation would be very different for Canada. In fact, in the long-run, education is the best tool for combating inequality: increasing the supply of high-skill workers and decreasing that of low-skill workers will automatically reduce wage differentials without economically distortionary government interventions.
So, thanks to the NY Times for pointing me to that interesting data, but FAIL for reaching the wrong conclusion. (Again, I'm not saying that higher minimum wages are bad, just that the facts mentioned by the NY Times do not support their case.)
This seemed fishy to me, so I went ahead and checked out the actual Labor Department data. It turns out that by definition, low-paying job categories tend to be larger. To see why this is a problem, consider the following example. Suppose for simplicity that there are 1M low-paying jobs divided into 10 categories, and 1M high-paying jobs divided into 100 categories. Also suppose that the low-paying categories are projected to grow by 5%, and high-paying ones by 20%. Then each low-paying category would add 5,000 jobs, while each high-paying category would only add 2,000 jobs, so by the NY Times' methodology, we'd reach the false conclusion that low-paying industries are expanding faster.
The actual data is not as stark, but the pattern is definitely there. In fact, “very low” paying occupations are projected to add 3.65M jobs from 2006 to 2016, “low” paying 3.38M, “high” paying 3.34M, and “very high” paying 5.22M. These classifications are quartiles, each containing occupations representing 1/4 of workers in 2006. So as you can see, the data cited by the NY Times actually undermines their point, since "very high" paying jobs are projected to grow the fastest, with all other categories growing about equally fast. Sadly, this statistical sleight of hand forms the basis of much of their argument, so the entire editorial is pretty worthless.
This is not to say that I oppose a higher minimum wage in the U.S. or Canada: I haven't made up my mind on the issue. But what this data suggests is that, in fact, education needs to be a high priority in the U.S., since it is jobs in the top quartile, i.e. those that require the most skills, that are going to be created the fastest over the next few years. And I doubt that the situation would be very different for Canada. In fact, in the long-run, education is the best tool for combating inequality: increasing the supply of high-skill workers and decreasing that of low-skill workers will automatically reduce wage differentials without economically distortionary government interventions.
So, thanks to the NY Times for pointing me to that interesting data, but FAIL for reaching the wrong conclusion. (Again, I'm not saying that higher minimum wages are bad, just that the facts mentioned by the NY Times do not support their case.)
Wednesday, July 22, 2009
If we can't get your vote, we won't fund you
So given this, it looks like the Conservatives have decided to stop even pretending that Ablonczy's demotion had nothing to do with Toronto gay pride funding. The Conservatives are gambling that not funding Divers/Cité is going to do more good appeasing their base (which may be a bit disgruntled about all the bailout money) than harm losing the gay vote and the Montréal vote. Divers/Cité seems like a prime target Tories since clearly not many gays vote conservative, and Montréal is a wasteland in terms of Conservative electoral hopes: the entire metro area (even far-away suburbs, unlike Toronto or Vancouver) wasn't even close to electing a single Conservative in the last election.
This calculation may end up backfiring, though, if it costs Tories votes in the Québec City area, since they may find themselves in several tough fights there to retain their seats. I doubt that this will have an effect outside Québec, in ridings where the Tories have a shot.
This also fits into the pattern of Tories redistributing public money to further their political ambitions. Remember the $2.2 billion fiscal imbalance "resolution" given to Québec in 2007, and how when it was subsequently clawed back through tweaks in Equalization, there was suddenly money for GST harmonization for Ontario?
This calculation may end up backfiring, though, if it costs Tories votes in the Québec City area, since they may find themselves in several tough fights there to retain their seats. I doubt that this will have an effect outside Québec, in ridings where the Tories have a shot.
This also fits into the pattern of Tories redistributing public money to further their political ambitions. Remember the $2.2 billion fiscal imbalance "resolution" given to Québec in 2007, and how when it was subsequently clawed back through tweaks in Equalization, there was suddenly money for GST harmonization for Ontario?
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...)
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...)
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