Econ Talk: the debt ceiling

For those of you who are as confused about the debate around the debt ceiling as I am: here is a fantastic interview on Econ Talk that explains it very well.

Corporate welfare cuts

The Government of Canada has announced that it will be cutting $1.4 billion in corporate welfare payments to companies that produce renewable energy. Governments are not good at picking winners and losers in the market place, but the Spanish example demonstrates that government’s attempt to prop up renewable energy can be particularly disastrous.

I applaud this move and I hope that it is the beginning of even more cuts to corporate welfare (such as to the automobile industry).

Pensions: reality and fantasy

The Canadian Federation of Independent Businesses has come out strongly against increasing the size of the Canadian Pension Plan. They argue, correctly, that the increase will amount to a payroll tax and would hurt smaller businesses and discourage employers from hiring. Large corporations can generally swallow this sort of cost increase, but your local bakery or small law firm would be badly hurt.

The CFIB goes further by saying that public sector pensions are unsustainable and are unfair to every other Canadian.

The Public Service Allaince of Canada, a public sector union, was quick to say that the CFIB’s opposition is “a cynical campaign designed for no other reason other than to divide Canadians.” I’ve said it before and I will say it again, socialists have a tendency towards paranoia. What possible gain could the CFIB achieve by “dividing Canadians” over pension issues?

Actually the truth is that Canadians are already divided between those living in reality and those that are living in a fantasy world.

In reality money is not an unlimited resource and wealth must be created through productivity. If you want to have a comfortable retirement you must invest wisely and save prudently. Sometimes something happens and your investments and savings are lost, but risk cannot be taken out of life. The world is a risky and often dangerous place; all you can do is work hard and hope for the best.

In fantasy world money is an unending resource and all you have to do to create wealth is to take it from someone else. You don’t have to worry about investing or saving because your employer and the government will always have their unlimited supply of cash to hand over to you. Risk is not a concern because unicorns chased away risk with their loud farts.

I grant that fantasy world sounds more appealing than reality, but it is ultimately fantasy. You cannot change the realities of life simply by wishing or pretending it away. I forget now who said it, but many years ago I heard someone explain that you cannot bend a spreadsheet with good intentions. Reality is the world we actually live in and public policy should be based on what is real.

The reason why the private sector doesn’t have public sector pensions is because the private sector can’t afford such high pension benefits. Hell, the public sector can’t really afford it either. It is time for the public sector to wake up to reality.

Beer on Facebook

If you enjoy beer and you are on Facebook here are two Facebook pages that you should be liking:

1. Free Our Beer, a group dedicated to allowing adults to purchase beer in convenience stores like every civilized jurisdiction in the world (civilization here being defined as a place that you can buy beer in a convenience store).

2. Hogtown Brewery, a brand new brewery that will be launching soon in Toronto.

And if only Group 1 got its way you could buy the products of Group 2 at the corner store!

Ease up on Rob Ford

Rob Ford is getting a lot of flak for flipping off a 6 year old and her babysitter. And if all you read is the sentence “Rob Ford flipped off a 6 year old,” you would probably think he deserves all this ire. The mitigating circumstance, although not extraordinary, is significant enough that I’m going to give him a pass on this one.

Imagine driving in Toronto rush hour traffic (by the way Mr. Mayor can you do something substantive about that?). You are on the phone and for arguments sake lets say the call is important (and thus worth the risk of a fine). You are trying to pay attention to the important caller but still keep an eye on the road. Thus you are being frustrated by both the call and the traffic.

Then this kid and her nosey mom roll down the window and start yelling at you and giving you the thumbs down. Under such circumstance I would have likely thrown up the bird myself. Also, how can we be sure that he wasn’t flipping of the mother not the kid?

People, generally people who hated him in the first place, are using this as evidence that Rob Ford is a pig and is unworthy of being mayor. To my mind, even if he did swear at a child, being a pig does not disqualify you for public office. And hell, maybe in Hog Town it should even be a qualifier.

I’ll conclude just by pointing out that, pig or not, Rob Ford is a human being. He is susceptible to human moments of weakness and lapses in judgment. Blowing an incident like this out of proportion does nothing but encourage politicians to live scripted lives and then ultimately get criticized for being inhuman.

Toronto Council's ongoing war on fun

Another front of the Toronto City Council’s war on fun has been opened up. This time the City is looking at shutting down the growing number of restaurant and bars on Queen Street between Dufferin and Roncesvalles. I have no idea why some members of the City Council has decided that Toronto, a supposed world class city, should be about as fun to live in as Sudbury. But it is increasingly becoming annoying.

It is not the business of a City Council to micromanage the development and growth of every single neighbourhood in the City limits.

Raise the Debt Ceiling: the rap

This from Reason:

Beware of temporary government programs

Back in 2009 Conservative Party supporters were assuring fiscal conservatives that the “stimulus” budget was introducing temporary measures. At the time I viewed this argument with deep suspicion. My reason for suspicion was an awareness of a historical pattern of temporary government programs or tax measures becoming permanent. Also I was willing to bet that the group that benefited from the temporary program would fight tooth and nail to make it permanent.

It has become pretty clear that I was right to be suspicious. Most of the temporary programs have either been made permanent or are likely to become permanent with the support of some powerful interest group. The latest example is a “top-up” that was given to “have-not” provinces in addition to the normal transfer payments. The Premier of New Brunswick David Alward is pushing for the top-up fund to continue for another year, even though it has already been renewed for an extra year.

Considering the recent unhealthy debate over transfer payments, I suspect that the federal government will cave to Mr. Alward’s demands despite the supposed new age of austerity. The federal government will see it as money well spent just to keep the peace in Confederation. Then next year they will cave again for the same reason, then the year after that and the year after that. It will become a de facto part of the transfer formula and eventually they will make it official.

Albertans who will be voting for the next leader of the PC Party of Alberta should keep this in mind when they are considering Ted Morton’s plan for a temporary tax. What may start off as a short term tax may become permanent.

An interesting podcast: Selfish Reasons to Have More Kids

Do you hear that libertarians? The best long term strategy to change public policy is to donate your sperm.

Take a second look at Canada`s fiscal federalism

There are a lot of demonstrable differences between an economically free country and an economically unfree country. Perhaps one of the most important differences is the way that groups interact with each other. When people are free to trade with each other diversity is not a threat. The man from the southern tribe is not a danger to your northern tribe because that man is a costumer. In a country where the government picks the winners and losers that man becomes competition for resources. The trough is only so big. The larger the share of the southern tribe the less your northern tribe has.

Canada for the most part is an economically free country, which is one of the reasons that we avoid serious ethnic strife despite having incredible diversity. And yet I was reminded of this distinction between free and not free as I read the news articles coming out of the “Council of the Federation.”

It was shameful to watch as the 13 jurisdictions of Canada squabbled over the scraps from the federal trough. The Council was set up to facilitate cross-border cooperation but all pretence of cooperation slipped away as the only thing that they could agree on is that the federal government should give more money. Province was set against province as they argued over the formula to distribute the handouts.

Oddly, despite the clear animosity it was creating, no one in the media seems to be questioning if transfer payments are good for national unity. The purpose of these transfers is to ensure equitable access to government services throughout the country. Like so many government programs it has been twisted into something that is actually destructive.

It is time that federal dollars stops setting tribe against tribe. It is time for Canada to seriously re-examine its fiscal federalism.

Banning children's names

New Zealand has a list of names that parents are banned from giving to their child.

Are you kidding me? Seriously is this some sort of joke? I know libertarians tend to oppose almost every government ban that ever existed, but surely even the most state loving ban fetished leviathan sycophant would think that banning names is a step too far.

Granted, naming your child * is kind of freaking weird. But hey a lot of things that start off being weird eventually catch on. Besides why should the government be the arbitrator of weird and not?

For the sake of the children? I point out that little * is free to change his name (* is clearly a guys name) once he is 18. Furthermore there are plenty of common names that can be turned into insults by witty 8 year olds (note please that my name rhymes with poo. There were times in my youth I would have been happy to be named *).

The thing that really worries me about a list of forbidden names is that once such a list exists it is easy to add to it. Sure most of us do not want to name our kid * but by allowing the state to interfere with the freedom of the people who do want to we endanger our own freedom. Once the government has the opportunity to be the arbiter of a choice, there will be no end to meddling in that decision.

Journalist Fail

Part of a journalist’s role in society is to translate complex policy issues into language that the general population can understand. This way the public can engage in a more fruitful debate and hold policy makers to account. I have often found, however, that most journalists are not up to the job.

Yesterday Robert Hiltz of the Ottawa Citizen provided a clear example of what I mean:

With the Canada Health Act set to expire in 2014, about 90 per cent of Canadians "agree" the federal government should lead the way to a new heath accord with the provinces, a new poll suggests.

The author is confusing the 2004 Health Accord with the Canada Health Act. The latter is a law passed by Parliament that sets the conditions by which provinces can receive transfer payments from the federal government for health care programs. This is often called a conditional grant. The former is an agreement between the provinces and the federal government on how much that grant will be. They are not unrelated but they are vastly different. For one thing there is no expiry date on the Canada Health Act.

To give Mr. Hiltz some benefit of the doubt, it is possible that this is merely a typo that somehow got pass the editors. Yet even if so, the mistake is so glaring for anyone who knows anything about the funding framework of Canada’s health care system that I must conclude that the editors are probably ignorant. This does nothing to relieve my fears that the media isn’t doing a good job of informing the public.

This slip up may seem small but in a way the damage it does is significant. People, including very well informed people, are already confused about what the Canada Health Act is and what it actually does and says. Anyone reading the Ottawa Citizen yesterday would only become more confused.

Ignorance isn’t really that bad because it is easily corrected. A far worse condition is to believe that you know something that is factually wrong. It becomes very difficult to be convinced that your prior knowledge is incorrect and many people would belligerently deny the error until the day they die. The Ottawa Citizen, in this case, is not creating a more informed public but making it harder to do so.

Of course journalists are human and so are editors. Mistakes will happen and I am not sure I have a solution that would prevent such mistakes. Hell, I’m sure that if you go through my hundreds of blog posts you will find a factual error or two.

But these small errors that could have easily been avoided truly drives me insane.

The USA is defaulting through inflation

Ron Paul has a good point. If you owe someone $10 and inflation is high, then in real dollars you now owe less. This is the default strategy of the US government. They owe trillions that they are not really going to pay back.

Crime and Statistics

Someone once said that there are lies, damned lies, and statistics. Personally I prefer a joke, that I perhaps overuse, that claims that 67% of all statistics are made up. Both phrases convey the message that statistics can be misleading because they appear simple but are almost always complicated. Statistical information is important to providing empirical evidence to an argument, but to employ it properly you have to understand what the statistic is actually demonstrating and how that information is used.

The debate over crime stats has all emerged as a great example of how misunderstanding the nature of statistics can lead to great confusion. The Conservatives claim that Stats Canada cannot include all crimes, even violent crimes such as murder, in the annual crime statistics. And if you think about it for a moment it is fairly obvious that they are right.

Consider murder for a moment. A lot of people go missing every year, isn’t it possible that some of these people have been murdered, but not reported as such? Isn’t it also possible that clever criminals could disguise the nature of death and that more murders will not be reported? Clearly Stats Canada cannot be completely accurate in reporting the murder rate. I will take it a step further and say that it is impossible to produce a completely accurate statistic for a population the size of Canada.

Fortunately no one in the policy world expects complete accuracy from statistics unless they are politicians or journalists. The usefulness of a statistic is dependent on how much we can reasonably assume that it approximates reality. It is for this reason that the methodology of collecting the statistical information is so fundamentally important.

Let’s take a moment and look at this from a slightly different angle. I will revise my earlier statement. Statistics can be completely accurate if you are exact on what the statistic is reporting. Stats Canada’s murder rate, for example, is accurate (one presumes) in reporting the number of identified murders. Academics and government officials take this information on identified murders and use it as a proxy for total murders. Considering that we can never know the actual total number of murders, using the number of identified murders as a way to understanding how common murder is in society seems reasonable.

Some Conservatives seem to be saying that this isn’t reasonable, that it is possible to have more accurate information. Of course the best they could do is come up with a different proxy. The Macdonald-Laurier Institute proposed something, but I know too little about criminology to judge if it is a better proxy. But the only proxy that Conservatives seem to be offering is a gut feeling that the world is a more dangerous place.

Dismissing crime stats by saying that it can’t possible include all criminal acts misses the point. Of course Stats Canada can’t possibly accurately report every criminal action that takes place (if they could then they should replace the police), but that does not make the information useless. Government policy should be based on the best empirical evidence that we can find, not gut feelings.

Nature and the Economy

It is a bit long but she talks about a lot of crucial concepts such as the natural essence of the economy and the impossibility of government planning in the economic life.



As the Hayek character said in the second Hayek vs Keynes rap: There is no it, we are the economy.

Ron Paul ad on the debt ceiling

This is one of the better campaign adverts that I have seen for this election. If I have one critique it is just that the whole movie motif is kind of annoying.

Gary Johnson talks about drug legalization at CNN.com

In an op-Ed piece published by CNN.com, Republican Presidential candidate Gary Johnson writes about his support for legalizing marijuana:

When I ran for governor of New Mexico in 1994, I promised to bring a common-sense business approach to government. Everything was going to be a cost-benefit analysis -- how much of taxpayers' money are we spending, and what are we getting for the money we spend?

As governor, I was astonished to learn that half of what we were spending on law enforcement, courts and prisons was drug-related, and yet illegal drugs were cheaper, stronger and more available than ever. After further study, it became obvious to me that the drug war had created a lucrative black market and was enriching and empowering violent gangs and cartels. In many ways, it was like alcohol prohibition all over again, with similarly disastrous results.

I decided I simply couldn't allow the status quo to continue unchallenged, so in 1999 I became an advocate for legalizing marijuana and adopting harm reduction strategies for dealing with abuse of harder drugs (including prescriptions). I've been making these arguments ever since, and in recent months they have been resonating more strongly than ever.

...

If Republicans are truly serious when they talk about liberty and fiscal responsibility, and if they truly do their homework on the drug war, many will soon join me in my call for rational drug policy reform in the United States.

Although I am uncertain that harm reduction without legalization of “harder drugs” is the optimal solution, I am certain that it would be better than the status quo. This is just one example of why I would claim that if Mr. Johnson becomes President of the United States it would be the best thing to happen to the both the United States and the rest of the world in a long time.

Just wait until we get a majority! (Part 5)

I am sick of this minority parliament. I'm sure it is the opposition coalition of the Liberals, socialists and separatists are forcing Harper to make decisions like this: Tories extend enriched EI benefits for third time. We need a stable majority government so that we can start standing up for fiscal sanity.

The public union's war on the Conservative government

The Public Service Alliance of Canada has declared war on the Conservative government. The public sector union plans on launching a public relations campaign against the Conservatives with the ultimate goal of electing a “union friendly” government in four years. Considering how out of touch public sector unions are with the public in this country, I doubt that Stephen Harper will be losing any sleep. But there is an element to this that I find very frustrating.

I can see three reasons why the PSAC has decided to take this rather hostile position:

1. The unions are at least apparently in a strong position due to the unprecedented strength of their Parliamentary allies (the NDP)
2. With the back to work legislation during the postal strike, the Conservative government confirmed that it is no friend to public unions (which is good).
3. The public sector unions are worried about the cuts that the Conservatives have promised.

It is the last reason that I find frustrating. The Conservatives have promised to cut $4 billion over the next 3 years. That is a lot of money to you and me, but for the Government of Canada that amounts to a rounding error.

Don’t get me wrong I support the Conservative’s plan to cut; I just think that the cut is so small that the impact will be almost insignificant to the country as a whole. Far from slashing the state down to size, the Conservatives are being overly cautious.

And yet the reaction they are getting from some members of the press and special interests (such as the union) would make you think that hellfire is falling from the sky. Instead of keeping these cuts in perspective, the PSAC is declaring that a doomsday has befallen the good people of Canada. They are fighting as if these cuts actually meant something.

So now I am left wondering why the Conservatives ever bothered to be so cautious. If they are going to have to fight this war anyway they might as well try to achieve something real with it. They might as well make real cuts in government spending.

US spending cuts are not enough

Real action is needed:

For the CPP, bigger is not better

Keith Horner, a former government economist, is arguing that CPP should be expanded. His basic argument appears to come down to the claim that bigger is better. The bigger the contribution to CPP the more benefits CPP will offer. This claim is completely unfounded. In fact there is considerable evidence that once a fund manager reaches a certain size it loses effectiveness.

Neil Mohindra of the Fraser Institute recently reviewed the literature on fund manager size in a study titled: Should the Canadian Pension Plan be Enhanced?

Mr. Mohindra found that the empirical evidence in the literature shows that there is a diseconomy of scale once fund manager reached a certain threshold of size.

This is the summary that he provided:

The empirical literature reviewed in this study found that fund managers generally experience diseconomies of scale at some point in generating investment returns as their asset base increases, although relatively large pension plans can take action to offset these diseconomies.

The study concludes that diseconomies of scale present a risk to the CPPIB’s investment performance. The actions that the CPPIB is taking to offset diseconomies of scale in investment returns will likely become less effective as its assets continue to grow. Even modest expansion of the CPPIB will increase the risk that the CPPIB will not meet its objectives in helping the CPP fund Canadian retirement incomes.

To put it another way: The CPPIB (Canadian Pension Plan Investment Board) is already so big that it has to take action to offset problems that occur from being too big. These actions do not eliminate the problems but they do alleviate them. If you make the CPP even bigger then there is little the CPPIB could do to prevent a lost of effectiveness. Every extra dollar that goes into the CPP makes the CPPIB less effective in achieving returns.

So no Mr. Horner, bigger is not better.

Ontario Liberals look idiotic by accusing Mike Harris of "breaking" with PCs

The Liberal Party of Ontario theorizes that Mike Harris supports the Liberal government’s “green” corporate welfarism because the company that he is chair of is using it as an opportunity to make a little money. Magna International has sold parts that will go to constructing solar panels that are being funded largely through public subsidies. To jump from that to the conclusion that Mike Harris is “breaking ranks” with the PC Party is ludicrous.

Since the Liberal government is unfamiliar with terms like “accountability” and “responsibility” I think someone needs to explain to them what the responsibility of a corporate leader is.

Mike Harris as Chair of Magna has a responsibility to ensure that his company is making profits within the bounds of the legal system. He is also accountable to the shareholders to ensure that no opportunity is loss. If as a private citizen he thinks that the government’s corporate welfare system is a total waste of money, he still, as a corporate leader, has a responsibility to find an opportunity to make a profit for his shareholders.

To put it another way, it would be irresponsible for Mr. Harris to refuse to sell parts based purely on his own political ideology. If he was going around making ideological decisions on behalf of Magna, the shareholders and the Board would be perfectly justified in removing him.

By bringing up Mike Harris and the activities of Magna, all that the Liberal Party is achieving is making themselves look both desperate and idiotic at the same time.

Economic Freedom: prosperity and protection

Three articles published last week together make for a powerful argument for property rights to be protected in Canada’s constitution.

One of these articles was written by Karen Selick of the Canadian Constitution Federation. Ms. Selick argues that the idea that the Charter of Rights and Freedoms does not protect economic freedom is a myth. It is an issue that has never been adequately settled by the court:

In a 1989 case, three justices of the Supreme Court of Canada raised doubts about whether economic liberty should be considered part of the “life, liberty and security of the person” guarantee of the Charter. However, they said it was too early in the history of Charter jurisprudence to decide the issue definitively.

A year later, Justice Antonio Lamer (writing only for himself and not for the other five members of the Supreme Court) roundly rejected economic liberty as an American concept.

Although the court never explicitly decided the issue, the stripped-down mantra, “Canada’s Constitution doesn’t protect economic liberty,” was launched. It has been repeated time and again in Canadian courtrooms over the past 22 years, especially in cases denying individuals the right to pursue their chosen occupations free from onerous regulations. Judge Lamer’s urban legend fits in well with the prevailing mythology that Canada has always been a more collectivist, less individualistic country than the United States.

Ms. Selick goes on to argue that economic freedom and prosperity go hand in hand. The key to creating a better life is for the government to ensure that economic freedom is enjoyed by all.

An important component of economic freedom is property rights, which brings me to another article written by Scott Reid. Mr. Reid and Randy Hillier, Member of Parliament and Member of Provincial Parliament respectively, are attempting to amend the constitution to enshrine property rights. The fundamental goal is to allow greater economic freedom for how landowners use their property:

Such restrictions on the right to use and enjoy one’s property can result in significant reductions in a landowner’s ability to generate income from his property. In the case of many restrictions that the province has imposed upon farmers, these restrictions can result in significant new costs being imposed in order to carry on existing agricultural activities. In many cases in both rural and residential areas, such restrictions can cause a significant drop in the resale value of the property, or even destroy its resale value entirely.

Still, the problem is not that these land-use restrictions are imposed, or that regulatory compliance can be costly, or that such new laws may lower the resale value of the land. The problem is that, unlike outright expropriation of title, these losses of the right to use and enjoy one’s own property go entirely uncompensated.

Scott Reid also gives a solid definition of the property rights that he is proposing be enshrined in the constitution:

Property, properly understood, is never simply a physical object such as a piece of land. Rather, it is the bundle of rights associated with that object. The owner of a piece of land typically has the right to keep other people off his or her land, and if it is a farm, the right to keep livestock on it or to grow crops. Normally, this includes the right to erect fences and outbuildings. Usually, there is a right to build on any piece of land—although, after decades of hyperactive zoning rules, all kinds of limitations restrict these rights. Further restrictions exist for the purpose of ensuring that my use of my property does no harm to the ability of my neighbours to use and enjoy their property. This is the reason why I can’t build a ten-storey building where my house now stands, thereby ruining my neighbours’ views (and why my neighoubours face reciprocal restrictions).

The basic argument is that the government should not be able to strip away the rights of a landowner to use their property as she/he sees fit without the value of that right being compensated. Without that guarantee farmers and other landowners are less willing to invest in improving their land for fear that the government will simply strip them of that investment. This guarantee amounts to a protection of economic freedom that is strongly connected to prosperity.

Finally, my colleague at the Volunteer, Peter Jaworski, provides an example of why economic freedom is important beyond considerations of prosperity. As many of you know the Jaworski family has recently come through a legal ordeal that was launched by an overzealous bylaw officer. The official attempted to use municipal regulations to restrict the rights that the Jaworskis had over their property. They were to be fined $50,000 for hosting a non-profit barbecue celebrating, of all things, freedom.

As many of you also know the case was thrown out by the courts. As most of you wouldn’t know this ordeal had an enormous emotional toll on Peter and his family:

In our case, the bylaw officer in charge of fielding complaints against my mom and dad was aggressive and threatening. My mother lost 20 pounds and was prescribed anti-depression pills because of his behaviour. Sun columnist, Ezra Levant, called that bylaw officer for a column about our situation and described his interaction with the bylaw officer on his blog as “embarrassing; enraging; frightening.” The bylaw officer was “on a mission”, “boasting” about what he’d done to my mom, and what he still planned to do (take my mother’s bed and breakfast sign because he thinks it might be on city property).

Peter goes on to say that although the case was dropped it should never have been brought forward in the first place. He is absolutely right. The Jaworskis should have been saved from months of the sword of financial ruin hanging over their heads. If Ontario had a clear and established protection for property rights, as Scott Reid and Randy Hillier propose, then these innocent individuals would not have suffered. The local bylaw bully would not have had the power to carry out his “mission” of aggression.

So here is the argument that sums up all three of these articles: Property rights as a protection of economic freedom provides greater opportunity for prosperity and protects individuals from bullying government officials.