We don’t really want to fight climate change

By Aaron Wherry - Tuesday, December 13, 2011 at 2:49 PM - 0 Comments

Stephen Gordon invokes the law of revealed preference to explain Canada’s withdrawal from Kyoto.

Notwithstanding economically illiterate attempts to pretend otherwise, higher consumer prices for GHG-emitting goods and services are an essential component of any serious attempt to reduce emissions … It doesn’t matter what Canadians tell pollsters about how much they are concerned with climate change; what matters is the choices we make. And whenever we have been offered the choice of accepting personal inconvenience in order to reduce greenhouse gas emissions or of making sure that fossil fuels are cheap and plentiful, we have consistently and overwhelmingly chosen the latter.

Down with taxes, up with inequality

By Aaron Wherry - Friday, November 18, 2011 at 12:20 PM - 0 Comments

Stephen Gordon troubleshoots a proposal—championed by the New Democrats and Conservatives in Ontario, but also the federal NDP—to cut the sales tax on home heating bills.

Removing the HST on heating will cost a certain amount of money – apparently on the order of $350m. The share of those foregone revenues that will go to households in the highest income quintile is almost three times the share that will go to the low-income households that the measures’ proponents loudly insist are its focus. More than half of the money will go to people in the top 40%; only a quarter will go to the bottom 40%. As redistributional measures go, it’s more progressive than offering free yacht maintenance, but not as progressive as actually giving more money to those with lower incomes.

More from Livio Di Matteo.

Defend, reduce or scrap

By Aaron Wherry - Tuesday, November 15, 2011 at 11:17 AM - 0 Comments

The government was fairly adamant yesterday that it would defend supply management. Steven Chase imagines how they might reduce tariffs without abandoning the system entirely. Stephen Gordon considers how difficult it would be to scrap it.

The ideal solution to the problem would be to invent a time machine, go back to the 1970s, and tell policy makers what a terrible mistake they were about to make. Sadly, this is not possible. So how can we reduce dairy prices without ruining present-day dairy farmers who bought their quotas in good faith? One option — as described in this CD Howe proposal – would be to slowly increase the number of quotas over a long period of time, so that they gradually lose their value. When they are essentially worthless, there would be little loss in abolishing them.

NDP adventures in Westpolitik

By Colby Cosh - Thursday, November 3, 2011 at 7:28 AM - 0 Comments

ULaval economist Stephen Gordon cracked me up on Twitter yesterday afternoon with his reaction to NDP candidate Paul Dewar’s “Western strategy”. In a CP interview, Dewar proposed “investing in strategic industries and developing ways to help Alberta and Saskatchewan make the transition from natural-resource based economies.” In a series of tweets, a baffled Gordon asked

Why does Paul Dewar want Alberta and Saskatchewan to transition away from resources? That’s where the jobs and money are!… Another victim of the Manufacturing Obsession. …I think Dewar has stumbled across why [the] NDP is weak in [the] West. “Vote NDP! We’ll make you stop doing the things that are making you rich!”

Brian Topp has also said that the NDP needs a “Western strategy”; he flew out to B.C. to announce one last month, but ended up making no discernible mention of it, instead becoming embroiled in controversy over his (and Thomas Mulcair’s) explicit advocacy of overrepresentation in the House of Commons for Quebec. Could “relatively less voting power for B.C. and Alberta” be part of a “Western strategy” along with insisting that we leave our hydrocarbons and minerals in the ground, not to mention whipping the hide off of gun-control opponents? Is all this “strategy” predicated on some perception of Western masochism, or is it just comic-book-style “reverse psychology”?

A natural place to look for the rudiments of an NDP approach to the West might be in the party’s single Alberta outpost—the riding of Edmonton-Strathcona, currently manned by MP Linda Duncan. Masochism actually seems to work for Duncan: having been returned to the House of Commons by Alberta voters, she displays what looks a bit like contempt for them.

Linda Duncan, NDP MP for Edmonton-Strathcona, said she supported the spirit of the [electoral rebalancing] bill, but questioned what Albertans would gain from their new representatives. “What difference will it make?” she asked, making reference to a lack of federal funding for projects such as the Royal Alberta Museum, announced Wednesday. “Are we going to get six more Conservatives that don’t stand up for Edmonton?”

As Jack Layton’s environment critic, Duncan also upheld the “Stop doing the things that are making you rich” pillar of the grand Western strategy, calling for a moratorium on new tarsands development and for much heavier federal intervention in the sector. She did this because she thinks tarsands exploitation does more harm than good, which is at least coherent. Dewar apparently has some economic objection, with West Texas Intermediate around $90 in spot and futures markets, to the extraction and sale of oil (and presumably gas and uranium and potash and diamonds and coal).

I don’t know what he expects Albertans and Saskatchewanians to end up doing instead—baking artisanal bread? Writing folk songs?—but it should be noted that it’s the rest of the country that would be required to foot the bill for this “transition”. Either that, or we’re gonna need to recruit a few more “have” provinces somehow.

[UPDATE: A Dewar spokesman phoned this afternoon, hoping to clarify the wire story mentioned supra. What Mr. Dewar was driving at, Kiavash Najafi tells me, was "diversification" and the capture of "value-added" jobs "in partnership with the industries on the ground" as opposed to limitations on the output of raw-resource businesses. "We've heard from Westerners that they're frustrated about sending B.C. logs to China, sending raw Alberta bitumen to the United States for processing."

I'm sure Najafi is right about this: he is describing the philosophy by which Alberta was actually governed throughout the 1970s and '80s. I'm also sure this is unlikely to placate Gordon, who gnashes his teeth routinely over this very philosophy. But Dewar, for those who are keeping score, is eager to set himself apart from candidates who would suppress resource extraction for its own sake.]

When taxes aim high

By Aaron Wherry - Monday, October 24, 2011 at 2:35 PM - 33 Comments

Stephen Gordon questions the effects of taxing the rich.

What becomes more problematic is just who will bear the burden of those taxes – or, in the language of public finance, what is the incidence of increased income taxes on high earners? The ostensible targets of the UK bonus supertax were high-earning bank employees, and since they bore the statutory incidence of the supertax, they did indeed pay more taxes. But since they were able to obtain increases that left their after-tax incomes untouched, they weren’t left out of pocket by the measure: the economic incidence was passed on to shareholders, other employees and bank customers – in short, everyone except the original target. If the goal of the bonus supertax was to reduce the gap between high earners and the rest of the income distribution, it’s hard to see how it could be considered a success.

Greg Fingas questions Gordon’s analysis. Continue…

Maybe we have it all wrong

By Aaron Wherry - Thursday, October 20, 2011 at 10:00 AM - 36 Comments

Alex Himelfarb considers taxes and the decline of trust, transparency, honesty and equality.

Most Canadians do know that the teachers and firefighters, the police and health care workers, the roads and bridges and traffic lights, the help when we are down or temporarily out of work, the child and elderly benefits we receive are all paid for through taxes. But, we are still reluctant to pay those taxes. We will always say no to taxes if we believe government is inefficient and wasteful or incompetent or worse.

We are falling into what game theorists call a social trap. Even when we know that cooperating with others would serve our collective interests, absent trust, we go off on our own. The absence of trust limits our ability to act collectively and imagine new possibilities. It takes the future away from us and hands it to “the market”. No trust. No taxes. Trapped.

Stephen Gordon quibbles with Himelfarb’s prescription. Continue…

Don’t do something

By Aaron Wherry - Wednesday, October 12, 2011 at 12:07 PM - 17 Comments

Stephen Gordon questions those calling for the government to take action on jobs.

My reading of the data of which I’m aware suggests that current rates of job creation are consistent with those observed during the last expansion, and have been so for a year or so. Calls for the government to “do something” are misplaced; the labour market has been functioning normally for quite some time now.

‘Vague bromides’

By Aaron Wherry - Wednesday, October 5, 2011 at 8:45 AM - 3 Comments

While the NDP was pleased to see its motion pass the House unanimously, the Prime Minister promptly dismissed it yesterday as “extremely vague.” Worse than that, Stephen Gordon thinks the motion misunderstands economic reality.

Policy recommendations about employment should be based on a realistic assessment of current labour market conditions. And when you put things in historical perspective, current conditions are at least as good as one might expect after two years of recovery.

Less worse off

By Aaron Wherry - Tuesday, September 27, 2011 at 10:55 AM - 13 Comments

Stephen Gordon considers how much credit the government can take for our relatively good economic situation.

What of the role of the federal government? The proper way to evaluate policy is to consider the counterfactual: what would have happened if the federal government had behaved differently? I can think of many ways that the government could have made things much worse — the spending cuts that were its initial reaction were certainly ill-conceived. But since that austerity program was abandoned, it’s hard to point to a serious error that significantly deepened and/or prolonged the recession.

So the Conservatives cannot claim all the credit for those cross-country differences: Canada was luckier than the United States and the other G7 countries. The best it can say is that it didn’t make any serious mistakes that made the recession significantly worse.

In praise of VAT

By Aaron Wherry - Friday, September 16, 2011 at 2:32 PM - 27 Comments

Stephen Gordon tries to reconcile progressives with sales taxes.

Outside Canada, it is generally accepted that high VAT rates are an essential component of social policy: see the accompanying graph. Of the 21 OECD countries that spend more on social programs than does Canada, 19 have higher VAT rates. There are no rich countries that have pulled off the trick of sustaining high levels of social spending with low VAT rates … One of the more convenient features of the GST/HST is that it has already set up the infrastructure for transferring income to low-income households. The GST/HST tax credit can be used as a basis for an even more ambitious system of transfers at almost no additional administrative cost. All that is required is the political will to use it.

The demise of the HST

By Aaron Wherry - Monday, August 29, 2011 at 10:44 AM - 30 Comments

Stephen Gordon considers British Columbia’s rejection of the HST.

For an economics professor who has spent much of the past six years trying to bridge the wide — and apparently broadening — gap between what is known to economists and the talking points that are the stuff of politics, the B.C. HST referendum is an unsurprising disappointment.

Derailment

By Aaron Wherry - Wednesday, July 13, 2011 at 12:50 PM - 71 Comments

Stephen Gordon hasn’t forgotten about the census.

The census story is a train wreck in slow motion; the latest car to pile on the flaming ruins is the recent report that Statistics Canada has resigned itself to accepting incomplete responses to the National Household Survey (NHS) … The most recent census was in 2006, and it looks as though the next usable census will take place in 2021 at the earliest. Our understanding of what is going on in the Canadian economy in the next decades will grow steadily weaker as more cars pile on the census train wreck.

The structural deficit that dare not speak its name

By Aaron Wherry - Tuesday, June 7, 2011 at 10:18 AM - 31 Comments

Stephen Gordon sees yesterday’s budget as an implicit acknowledgement of a structural deficit.

Many commentators have suggested that the structural deficit was created by increased spending, so spending cuts are the appropriate remedy. I don’t see how this hypothesis fits the data, and the fact that the necessary spending cuts have yet to be specified suggests to me that there’s no expensive new program that can be blamed for the structural component of the deficit.

It’s much easier to tell a story (here and here) in which the cuts to the GST are the cause of the federal structural deficit.

High praise

By Aaron Wherry - Wednesday, April 27, 2011 at 3:39 PM - 34 Comments

Stephen Gordon considers the comparative ramifications of the NDP platform.

The party that wins the election will be forced to face that fact that the federal deficit is not going to go away on its own, and that the measures in its platform would make it worse. This election is the first in which the prospect that this government might be formed by the NDP would change comparatively little.

The economists want in

By Aaron Wherry - Wednesday, April 27, 2011 at 1:42 AM - 20 Comments

Canadian Business considers the emergence of economists in this election.

When the prime minister announced in early April that the Conservatives would double the amount Canadians could contribute to tax-free savings accounts, University of British Columbia economist Kevin Milligan crunched the numbers in real-time on Twitter. “Normally it would just be us yelling at the faculty lunchroom walls about these things, but now we can do it on Twitter and get these views out to the world,” says Milligan. “I think it’s an important role for us. It’s about trying to steer the conversation a bit more toward where the evidence is, more immediately.”

For recent evidence, see Stephen Gordon on tax policy and Andrew Leach on environmental policy.

The $6-billion conundrum

By Aaron Wherry - Monday, April 4, 2011 at 9:30 AM - 58 Comments

The Liberals say the Conservative plan to reduce the corporate tax rate amounts to a $6-billion tax cut.

But economist Stephen Gordon says they’re wrong.

But the Conservatives say the Liberal plan to raise the corporate tax rate amounts to a $6-billion tax hike.

But in a new attack ad, the Conservatives use a quote from this debunking the $6-billion figure to suggest the Liberals are mistaken.

But the Liberals say the Conservatives’ own words substantiate their projections.

About last night

By Aaron Wherry - Wednesday, March 23, 2011 at 8:56 AM - 3 Comments

Stephen Gordon critiques the boutique budget.

As noted here, most of the federal government’s spending consists of writing cheques to persons, to governments and to bondholders, and cuts to these items have been ruled out. The projected decline of spending as a share of GDP is due entirely to the announced freeze on program spending. This decline – along with the increase in PIT revenues is projected to eliminate the deficit in the next three of four years. This scenario seems implausibly optimistic.

John Geddes reviews the budget in print and video. Canadian Business consults economists. Andrew Potter laments for a budget about nothing. Paul Wells looks forward to the election.

The scientific case for questionable accuracy

By Aaron Wherry - Monday, February 14, 2011 at 10:07 AM - 40 Comments

Stephen Gordon responds to the new Chief Statistician’s claim there’s “no scientific basis” for claiming the National Household Survey will be flawed.

This is wrong, and badly so. So wrong that when his political masters suggested in public that the analysts at Statistics Canada were of this opinion, Munir Sheikh – Mr Smith’s predecessor as Chief Statistician – felt obliged to resign in order to speak freely and correct the record … In point of fact, Statistics Canada has done quite a bit of research documenting the fundamental flaws associated with voluntary surveys; see Kevin Milligan’s guest post as well as this. Insisting that “critics cannot be sure” is a remarkable thing for a Chief Statistician to say; statistics is not in the business of providing absolute certainty.

Popular economics

By Aaron Wherry - Tuesday, February 1, 2011 at 10:54 AM - 32 Comments

Mike Moffatt considers the corporate tax rate debate, while Stephen Gordon considers the GST.

It’s not clear to me that the Conservatives owe their 2006 victory to the GST cut, and governments in Quebec and Nova Scotia recently increased the TVQ/HST without – as far as I can tell – a great amount of fuss. Voters are adults, and can generally be counted on to make adult decisions if offered adult choices.

And even if voters do have an irrational aversion to the GST, I don’t see why I should be internalising this tendency. When politicians choose to sacrifice evidence-based policy in favour of electoral gain, they should be called on it.

In the comment thread under Gordon’s post, Ian Brodie, Stephen Harper’s former chief of staff, turns up to defend the GST cut.

What's a finance minister to do?

By Aaron Wherry - Monday, January 10, 2011 at 5:28 PM - 17 Comments

Stephen Gordon considers two options and advises neither. At least for now.

So that leaves neither renewed stimulus nor a program of austerity – at least, not for the 2011-12 fiscal year. Next year, if current trends continue, we’ll face a different set of circumstances: the recession will likely be behind us, and the deficit will likely still be with us. It would be nice to see some indication in this year’s budget of how the government intends to deal with next year’s problems.

Kevin Lynch makes the case for meaningful restraint. Bruce Anderson suggests there are political gains to be made at Jim Flaherty’s expense.

When ministers of the crown tweet

By Aaron Wherry - Tuesday, December 14, 2010 at 9:28 AM - 41 Comments

With the government announcing new funding for Pratt & Whitney yesterday, Greg Weston posted a series of questions and concerns last night about the loans involved and the jobs promised.

The government announcement also claims the deal will “create and maintain an average of more than 700 highly skilled jobs during the project work phase, and more than 2,000 jobs during the 15-year benefits phase.” The company later explained that it hopes to hire about 200 new staff for the research and development project, expected to take about five years. At $300 million from taxpayers, that works out to $300,000 a year per job.

As for the rest of the jobs, Clement’s press secretary, Lynn Meahan, explained that “hypothetically, without the project, the workforce would have shrunk.” She said the promised 2,000 long-term jobs would come from manufacturing the new engines yet to be developed, and it is not clear how many of those positions, if any, would be new.

Economist Stephen Gordon and our own Andrew Coyne duly tweeted their criticisms. And it was soon thereafter, perhaps inevitably, that Industry Minister Tony Clement attempted again, 140 precious characters at a time, to explain and defend himself.

To wit. Continue…

How to help

By Aaron Wherry - Wednesday, November 24, 2010 at 11:12 AM - 21 Comments

Stephen Gordon considers the costs and benefits of guaranteed income.

There’s a proposal being floated around Quebec policy circles that would ensure that someone who works 16 hours per week at minimum wage would still have an income that would put her above Statistics Canada’s poverty threshold for Quebec (about $12,000). These amounts are far from lavish, but the costs are surprisingly high. In this report, some of my Laval colleagues estimate that the lower bound is on the order of $2.2b. To put this in perspective, one percentage point of the Quebec TVQ (the provincial GST) generates about $1.2b in revenues. Financing even this modest proposal would require the equivalent of at least two extra percentage points to the TVQ.

The RSS tag the Globe put on Kevin’s recent Economy Lab post says “If it’s not implemented properly, a guaranteed annual income could become a very costly program”. I think it’s better to say that if it’s not costly, then the BI isn’t being isn’t being implemented properly. There’s really not much point in arguing for a BI if you’re not prepared to argue for significantly higher taxes.

'A price solution for an income problem'

By Aaron Wherry - Tuesday, October 26, 2010 at 1:08 PM - 0 Comments

Stephen Gordon questions the NDP call for a tax break on home-heating costs.

If we’re concerned about the income problems associated with home heating costs – the affordability issue – the proper remedy is an income solution: give more money to low-income households. If we’re concerned about whatever price problems there may be, the proper remedy involves increasing the cost of GHG-emitting home heating. And if we’re concerned with both, we can implement both remedies simultaneously: increase the cost of home heating and give more money to low-income households.

Backward bending

By Aaron Wherry - Thursday, October 21, 2010 at 11:56 AM - 0 Comments

Stephen Gordon sorts through the corporate tax cut rhetoric.

If the CIT cuts go through and are later rescinded, we will not see a recession in which some 233,000 people lose their jobs. Instead, long-run incomes will be about 1.4% lower than they otherwise would have been. I think rescinding the CIT cut would be a mistake, and that it will cost less than the advertised $6b figure. But it wouldn’t be the worst mistake we’ve seen in the last five years.