« Excess supply under monopolistic competition | Main | Remembering prisoners of war »

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Universal Pharmacare tied into Medicare.

The National Health Service in the UK provides drug for home use. Canada doesn't. Drugs weren't the big cost when Medicare assumed its present form in the 1960's. It was excluded on the grounds of cost. This has rapidly changed.

Right now Canada depends on a patchwork of public and private coverage for drugs. Seniors usually qualify for a provincial plan, Quebec has mandated universal coverage, the rest have income-tested public plans and varying degrees of workplace related private coverage and a smattering of individual plans, usually associated with provincial Blue Cross plans with medical underwriting requirements (exclusions happen)

Insuring chronic conditions like Type I Diabetes is a nightmare as personal insurance plans won't buy a known loss and employer plans dislike having to payout a regular monthly benefit instead of a lump-sum. Type I Diabetes is among the most expensive of diseases to manage because it involves insulin which is brand-name (generics don't exist yet due to recent drug developments) and expensive testing equipment (glucometer strips cost $1.00 each, on average).

We, the Economists' Party believe that as an classic example of redistribution for the public welfare, drug coverage should be a government service. Furthermore, under the principles of community insurance rating, a large community (in this case, the nation itself) has a known and stable rate of sickness and need for medicine. Individuals have a highly variable rate. Therefore a community-based fund with the broadest possible contributor pool is economically and socially optimal for paying for pharmaceuticals.

Furthermore, aside from the reason of "it's always been done that way", we see very little evidence for supporting employer-based drug coverage. It is the business of business to engage in productive economic activity such as home construction, driving freight trucks, or operating a call centre. None of that has anything to do with providing drug benefits to employees. We believe paternalism of that sort is the purview of the state. Therefore our drug coverage initiative will be funded out of the Consolidated Revenue Fund, that is income taxes and GST. The cost of benefits for employees will be reduced to a tax charge.

We also believe that redistribution should be funded out of income, that is it should be proportional to ability to pay. Businesses in economic distress will not be burdened with the cost of benefits.

We also believe that this initiative will increase Canadians' job mobility and optimize the labour force. Benefit coverage should not be a factor in seeking employment. That choice should be based on skills and straight pay. We believe that Canada deserves to have healthy, active, mobile workers who need not fear for their personal health during times of personal economic hardship.

I dunno. It's a fun idea, but there's a limit to how far I'd want to push this. What economics can do is show how certain policies could have unanticipated consequences, and that the winners and losers from a certain measure may not be the intended targets. We have a lot to say about *how* policy goals can be obtained, but much less about which goals should be adopted.

But in the meantime, there are a lot of Pareto-improving free lunches out there, so maybe we can be like the Bloc Québécois: an explicitly temporary coalition that will disband when its main aims - injecting basic economics into policy analysis and public discourse - will have been achieved.

Of course, like the Bloc, that means that it would be entrenched forever...

"there are a lot of Pareto-improving free lunches out there"

That's my thought as well - that we can exploit those. As far as, say, the 'ideal point' of the equity vs. efficiency trade-off, there isn't a lot we can say there, IMO.

But yeah, the post is intended to ask about bad economic policy than to be a 'serious' idea. I won't be registering us with Elections Canada. :)

Mike,

Granted, most/all will want to be the Minister of Finance in the new Economists Party.

However, to demonstrate my support for this important innovation, I am willing to give up my dream to become Minister of Finance and become the Minister of Industry.

My first act will be to deliver a speech - in Regina before the Saskatchewan Chamber of Commerce where Brad Wall delivered his Hugo Chavez speech last week - explaining why Brad Wall is a dangerous demagogue who seduces those who lack principles.

In that speech, it will be announced that the potash decision has been cancelled - retroactively symbolically - to 1974 when FIRA was first passed by the Trudeau Govt.

Then, for good measure - it is Saskatchewan - it will be announced that [Andrew Coyne beat me to it]:

An end to all subsidies. Full-cost pricing. Equity concerns met via Income transfers rather than price-fixing. No quotas, tariffs or unnatural monopolies. Public finance, not public provision. Benefits in cash not kind.

And an immediate end to all farm management producer support organizations whose job is to extract rents from consumers and citizens.

As an aside, this debate demonstrates why it is critically important that an economist researches the linkage between these bad policies you and Coyne have enumerated and Canada's poor productivity. The overarching objective of the potash decision - supported religiously by the potash CEO and other Cdn corporate executives - is to entrench Cdn executives so that they cannot be forced out through hostile takeovers. In other words, so they can continue with their mediocre management and strategies without risk of termination. As Stephen Gordon noted last week in the Globe, the foreign MNCs have much stronger records of R & D and higher productivity - relative to Cdn controlled and managed corporations. IF we really want to successfuly address our lower productivity levels, we have to directly confront Cdn rent seekers and their protectionist partners in the House of Commons who embed protection in Cdn law and regulation (and when MPs retire, are invited to sit on the Boards of Directors they so assiduously protected while in the House).

Ian

PS You may also want to look at Olsen's second book, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, where he analyzes the consequences of The Logic of Collective Action at the macro.

I knew that when I read your post the first time, but my soapbox speech still stands.

Now, how about income tax policy? I want us to move to the Australian system where the Federal Government collects all income tax and the provinces/states get transfer. Plus welfare should be a federal matter, per Rowell-Sirois.

You had me at ending dairy supply management. Access to the cheeses of the world at reasonable prices. Where do I sign up?

I edited the above in light of Prof. Gordon's comments RE: "We have a lot to say about *how* policy goals can be obtained, but much less about which goals should be adopted."

Ha! As if an Economist's Party would have any more stability/consistency of thought than what we have. I think between you, SG and AC you may have been soliciting comments closer to the Maxime Bernier wing of the party.

Still, eliminating Marketing Boards (a cartel of sorts that may have outlived its usefulness) seems like a good idea. But, as a GPC supporter, your leader's support of cow co-ops and distributing to owners un-pasteurized milk seemed a bit short sighted - when you take into consideration the longevity of the voters you may gain. The e-coli pander.

I'd place term limits on politicians and members of the Parliamentary Press gallery. The coziness and bonhommie is stifling. "Pass the hors d'oeuvres."

Economists love to hate supply management. But supply management allows covered sectors to meet self-reliance objectives with regard to the food supply, and also provides decent incomes for farmers. Neither is the case in other aspects of the food system, where most farmers get hosed. If anything, we will need more supply management, with the prospect of food supply disruptions in the future due to climate change.

Ending supply management is bad public policy based on bad neoclassical economics that oversimplifies both economics and the real world of public policy. Calling for it demonstrates why an Economists Party (that is, of people who only see the world in abstract terms based on flawed assumptions about how economies actually work) is a dangerously bad idea. Economists should form a party only after a prolonged period of researching the real world, sector by sector, to analyze its market failures (oligopolies, positive and negative externalities, economies of scale, imperfect information) and then develop policies based on real-world policy objectives that may be of interest than merely maximizing GDP.

Other policies:
no rent control and tax reform with first target for lowering being corporate taxes and first target for raising being consumption taxes

Cake, and eat it too!

I like the idea of using 30 NPV buy-outs to coerce an end to planningopolies like this. None of the beneficiaries of the policy would ever complain, and the cash would help them transition their industry to become globally competitive.

Hopefully Anonymous tipped me off to this Canadian political party:
http://reasonvancouver.ca/about-reason/

Ending agricultural subsidies would be a good place to start (I think the Economist has it at around $7-8 B/yr.
Place greater emphasis on crafting a comprehensive trade deal with India/Brazil over the stalled European Union.
End any existing import tariffs on ethanol.
Work with the provinces to improve personal finance knowledge across the country so that investors, young and old, have a better understanding about the power of saving and the dangers of over-leveraging.

Thanks for your suggestions everyone!

Marc: Your defense of supply management intrigues me, but you'll have to do better than 'you guys just don't understand!' Suppose this economist would like to learn more about the benefits of supply management - what sources would you recommend?

JvfM: There are a number of Green policies I don't necessarily agree with (e.g. potash decision, half-hearted defense of long-form census). But nobody should expect to always agree with every aspect of a party. Lately I've just been frustrated with Canadian politics in general than with any one particular political party.

End occupational licensure...get rid of the Colleges of Phys/Surgeons, the Nursing Colleges, the Bars (not the kind for celebrating economic freedom in, the kind you get called to), the guilds, etc. I know it won't happen, but it's nice to think about. What a glorious fight that would be!! Beats any other health care reform I can think of.

Our own personal hobby horses aside the Economist Party wouldn't solves anything. I think what we're all really wishing for is less ignorance among the electorate. Take the potash thing. The underlying problem is that it's political suicide for a politician to make an evidence based policy decision.

30 year NPV has got to be on the order of 20 - 30 billion dollars for milk alone. Yikes.

Or how about just saying that immigration as a professional in a regulated profession will only be approved if the professional is certified to practice by a Canadian regulator before immigrating.

What we have right now where the Feds bring in immigrants with professional qualifications and then those qualifications are ignored and discounted by provincial regulators is worse than wrong, it is a fraud perpetrated by the government on both on the immigrant and on society.

Given the nature of the issues facing the country and the world, I'd probably rank a carbon tax ahead of ending supply management...(destabilizing the global environment > paying too much for cheese, even speaking as someone who eats over a kilo of cheese a week)

Diminishing marginal utility of money would also seem to suggest strong support for redistribution from the wealthy to the poor, I imagine.

And the economists natural opposition to all monopolies should lead to the removal of all patents & copyrights.

This all seems pretty consistent with what Coyne was looking for (full cost pricing, income transfers, no unnatural monopolies (not sure why he wants to go easy on the natural monopolies though)).

On a slightly more serious note, I agree with Stephen's first comment above, suggesting that economists will have more to say about the means than the ends. If Canadian society places a higher value on dairy farmers having a secure livelihood then it does on getting cheap cheese, then who is an economist to tell them they are wrong in their priorities?

I suggest starting an Economists International, with the Canadian Economists Party as a founding member.

My question for you is - what is the very first policy that a newly organized Economists Party should promote? I give mine below. Just visiting from Macleans will be surprised to see it has nothing to do with the GST or corporate tax rates:

Sorry, but I couldn't resist the bait any longer. From last Friday's Economy Lab:

Ottawa's budget math doesn't add up
Dr. David E. Bond is the retired chief economist of HSBC Bank of Canada

Two points flow from all of this. First, the future rate of Canada’s economic growth will not be particularly stellar. Second, reaching even the deficit estimates of Mr. Page will require more fiscal discipline than the Tories have exhibited in the past. Rather than announcing multi-billion dollar spending projects, it is time to start eliminating programs or the budget will never return to balance. Of course the Tories could restore their foolish cut to the GST and end the debate, but could you imagine them doing that?

http://tinyurl.com/33z8p8k

Answer to last q, pragmatically, no to restoring "their foolish cut to the GST". So, how to "start eliminating programs or the budget will never return to balance". Ummm, delay other tax cuts elsewhere? :)

Would an economists party be really that different from any other party? Nancy Folbre has a fascinating article pointing out that economists don't have a code of ethics, and some of us could use one at times.
http://economix.blogs.nytimes.com/2010/11/08/ethics-for-economists/?hp

I don't understand your frustration on the POT transaction. In fact, it meets three principal requirements: (a) politically, for the conservative, who are looking at an election in the spring, the potential loss of 13 seats -- Saskatchewan residents are uniformly against the transaction, and would have punished Federal MP at the next election was an easy call, (b) The provincial government was against the transaction and was very vocal about it, since natural resources are the purview of the province, the Federal government simply preempted the decision that was bound to emerge. and finally (c) the Alcan purchase by Rio Tinto turned out to be a disaster for the province of Quebec -- since the Liberals are still in power no one is making much hay about this, but the reality is that this has been a disaster for provincial tax receipts. As an addendum it has also been a disaster for Rio Tinto, paying $100 per share was well beyond the value of the company -- the only group which did well were the Alcan shareholders (funny enough most Canadian pension funds were well invested into Alcan...).

Finally, and most amusing, the majority of POT's management are based in Chicago (Can't say I blame them) and the same holds for shareholders who also, as a majority are not Canadian.

Overall, harper did the only thing he could, he saw the mob moving in one direction, he had two choices: stand against the traffic and be trampled, or go with the flow... he chose the only reasonable outcome for him and his government. Sounds reasonable to me!

I've just realised why it would never work.

Think about the last meeting of the economics department.

Now imagine if that same group of people had to decide everything.

You see what I mean? ;-)

"Nancy Folbre has a fascinating article pointing out that economists don't have a code of ethics, and some of us could use one at times."

"Think about the last meeting of the economics department."

Thanks for the reminders! Being at a B-school I often forget what it's like to be in a group of economists.

I think there is quite a paradox in this idea. As economists, we typically consider waste to be the top mortal sin, yet we'd be wasting precious intellectual resources in attempting to get elected while knowing perfectly well we'd have no success whatsoever. Thank god (or rather history), this is not Plato's Republic and we're no philosopher kings. This is democracy, where on average mediocre policy is the price we have to pay for making sure that no small group of powerful idiots gets to make our lives unbearable. And this way at least, everyone has enough freedom to contribute his little bit of excellence to the whole messy process. There's probably some link to be made here with Buchanan's rebuttal to Arrow's initial social choice paper. I'm frustrated with our politics too, but as compared to any alternative in the real world, I don't think it's that bad.

An end to all subsidies. Full-cost pricing. Equity concerns met via Income transfers rather than price-fixing. No quotas, tariffs or unnatural monopolies. Public finance, not public provision. Benefits in cash not kind.

This is where it fails right there. Income transfers are vulnerable to political attack in a way that price-fixing for the parts of society we want to protect is not.

What you would construct is, at best, a centre-right party minus some amount of populism unless you have made your goals clear. Among primary goals to me, for instance, is preventing/reducing income and wealth disparity, and permitting people to remain in their chosen occupations and livelihoods whenever possible. Since economists tend to be against these kinds of things for, as far as I can tell, purely ideological reasons, the idea of a rational, ideologically neutral Economist Party seems a little ludicrous to me.

And I think the term for what Marc is talking about is Food sovereignty.

The fundamental problem with an economist political platform is the tendency of mainstream economists to support post hoc compensation of losers from market forces rather than coming up with ways to protect classes of losers from losses in the first place. Post hoc compensation is extremely vulnerable, politically, compared to explicit/principled/full-throated protection of potential losers.

My problem with a economist's party is that we'd all think we know better than we do, and start changing things en mass to fit our theoretical models. In reality, there are many reasons, including non-'economic' for which things are the way they are. I believe, someone with a economist's view of the world - and forget macro that dismal science - would take a look at the world and generally believe that it runs efficiently, given some tracking error. The questions is whether an "economist's party" would help or not.

I'm with Alex.

Plus, what if the economists' party actually won? What the hell would we do then?

The only thing worse than government by economists would be government by lawyers. Errr.

"And I think the term for what Marc is talking about is Food sovereignty."

How far do we carry that arguments? Subsidies for fresh fruits and vegetables in winter? Because, for the right price, I'd be happy to tear up my backyard and plant some banana trees (hey, if we're going to be a banana republic, let's do it right). Should Toronto continue to be dependent on milk products products which might be cut off in a crisis (i.e., milk produced by Quebec farmers) or should it be subsidizing its own cattle farmers to ensure food sovereignty? (I'm putting in my bid for grazing rights at Queen's park!)

In any event, even if one accepts the "food sovereignty" argument there are better ways of achieving it than supply management coupled with punitive tarriffs. If society wants to pay farmers to produce products in order to keep them in business, than fine, let's make a lump sum payment to each dairy farmer every year (hell you could dress it up as a payment to "preserve the country lifestyle" or as an "emergency milk reserve contingency payment") while letting consumers purchaser their milk at the prevailing market price. I'd bet such an arrangement would be both cheaper for the public and would be far less regressive in its incidence.

On a related note, I'm reminded of the old cow-oriented description of European democracy:

"You have two cows. At first, the government regulates what you can feed them and when you can milk them. Then it pays
you not to milk them. After that it takes both, shoots one, milks the other and pours the milk down the drain. Then it requires you to fill out forms accounting for the missing cows."

On the irrationalities of supply management by the US Dept. of Agriculture:http://www.nytimes.com/2010/11/07/us/07fat.html?src=me&ref=homepage

Mmmmmmm....chocolate fudge cheddar cheese:

http://www2.macleans.ca/2009/02/15/mps-and-chocolate-fudge-cheddar-cheese/

The politics will only change once the people change...that's sorta how democracy works. But that's okay! It's a small price to pay for democracy. **cheers**

The point is: don't take your message to the politicians, take it to the people.

Anyway, I'd like to see massive massive massive investments in infrastructure. I'm from Ontario, so I'm particularly talking of building subways to connect all of the GTA (including Mississauga and York Region) as well as high speed rail from Windsor to Quebec City. Think about what this would do for productivity!!

I don't care how much deficit it causes. Massive massive infrastructure. Am I right?

With tongue in cheek--Are you sure the Economists Party of Canada would get enough votes to elect even one MP? Doesn't the majority of the population blame economists for not predicting the 2008 global financial crisis? And even for creating the crisis in the first place (average person may not grasp the difference between a derivatives trader and an economist). Not sure people would be "voting for another crisis" as the opposition would spin your campaign in a fit of negative advertising.

Economists still need some re-branding and image restoration work before an economists party would work.

Maybe though, you could advocate for an "Economists Bloc" (comprised of economics-degree-holding MPs from all parties).

"An economist for PM! An economist for PM!...huh?...what's that?...oh....oops...never mind"

"With tongue in cheek--Are you sure the Economists Party of Canada would get enough votes to elect even one MP?"

Well, they'd have to have the right platform and the right strategy. Run as the Economics Party, but run on a platform containing the sort of "economics" that Joe Q Public wants to hear (i.e., no trade-offs). Ideally, you'd discretely retain a gaggle of economists, preferably bank economists, to crap all over these policies (all but assuring their popular support). In fact, in a perfect world, a number of former colleagues in your respective economics departments would come forward of their own volition (not being in on the plan) to denounce your theories as unhinged, lunatic and dangerous.

Of course, once you're elected, you'll toss the whole damned paltform in the garbage can and implement good policies. Sure, that's dishonest, but apart from the "good policies" part, that's really the modus operendi of your typical successful Canadian political party.

"Canada's current negotiations for access to the European Union market may be compromised by the status quo dairy system."

Add that Canada's dairy system has already locked us out of the Trans-Pacfic Partnership trade talks, which could wind up being at least as important as the ones with the EU.

I would vote for your party.

"With tongue in cheek--Are you sure the Economists Party of Canada would get enough votes to elect even one MP?"

Heck, I'd be surprised if it'd get enough votes to get our deposit back. But we'd get more votes than the Marxist-Leninist and Communists *combined*.

Heck, I'd be surprised if it'd [Economists Party of Canada] get enough votes to get our deposit back. But we'd get more votes than the Marxist-Leninist and Communists *combined*.

I thought the latter was a faction of the former.

IIRC, the Marxist-Leninists are an off-shoot of the Marxists after the Sino-Soviet split of the 1950s (now don't ask me which one took what side!)

Errr.. Marxist-Leninists are an off-shoot of the Communists.

I was speaking of the Marxist-Leninist and Communists being a faction of the Economists Party.

Ahh... right.

But this 'split' idea has me thinking: How long would it be before the Economists Party split into Freshwater and Saltwater factions?

Not long:

Pro potash- Salt Anti-potash- Fresh

Aside: You do know that at one time, all the world's water was fresh. It was only by flushing the salts out through rivers into the oceans where it had nowhere else to go (and was further concentrated through evaporation) that the two were differentiated.

~pure vs ionically challenged.

Seignorage by private banks is an unnatural monopoly worth several hundred billion dollars. It is supported principally by deposit insurance.  End it.

Yeah, I know. The capitalist world as we know it would come crashing down in flames so cataclysmic that...    But, seriously.  There are alternatives.  Electronic expansion of M0 via extension by the Bank of Canada of the payment system to all citizens is a good start.  It wasn't technologically possible when the current system was conceived.  Now, it's trivial.  If the banks need some help to wean themselves off the public teat, CMHC could buy some mortgages that they're already guaranteeing anyways, at least while the system adapts.  An unsubsidized (deleveraged), free market for credit is also a great place to start if we want to reduce the unnatural instability of the financial system.  Expansion of M0 would also go a long way towards eliminating federal debt. 

Secondly, a carbon tax is a no-brainer. But so is land tax. Ricardo knew it was 100% efficient. So did Henry George. Why have the rest of us forgotten this? Canadians are carrying $1Tn worth residential mortgages. A big chunk of that is land value. If we collected the full amount of those rents as taxes we would be paying them to ourselves and not to the banks.

Bob Smith: You seem to be asking what the correct scope of food sovereignty should be. The obvious answer: the local sovereign polity that controls the currency and other instruments. To me, the point of food sovereignty is to reconnect our economic arrangements with collective democratic decision-making. In order to do that, we need to reduce the levers by which forces hostile to economic democracy can undercut it---one of these is making sure that the population within the polity has a food supply that cannot be affected by international trade.

The point of the supply management *is* the supply management itself. We don't want the population growing dependent on cheaper foreign products not produced under the same labour and environmental conditions---ie, the use of cheaper labour and environmental regulations as a comparative "advantage". Then they would begin to see the subsidy to the local farmer as redundant. Subsidies to local farmers and supply management+tariffs are not equivalent, we actually do want to connect local farmers to local consumers.

That's not because I suffer from a local food fetish. It's merely a necessary part of restoring the kind of sovereignty required for a democratic economy.

K:

Seignorage by private banks is an unnatural monopoly worth several hundred billion dollars. It is supported principally by deposit insurance. End it.

...
Electronic expansion of M0 via extension by the Bank of Canada of the payment system to all citizens is a good start.

Expansion of M0 by the state bank is not an original idea.

Substitute GOSBANK for the BoC, minus the electronic part, and you'll get the USSR circa 1920-1990. One can hardly claim that the project was a resounding success story. Or can one ?

vjk:  Gosbank was a central provider of credit, the antithesis of a free market for credit.  I am proposing that private banks should compete for wholesale funding in the open market, unfettered by government interference; that the public shouldn't be on the hook for their liabilities, either in principle or in practice; and that it ought to be our right to keep Canadian dollars safe from credit risk even if it's more than $100K.

What (economist-promoted) economic globalization hath wrought is that it has crippled our ability to decide democratically on the economic common good. As such, it has effectively reduced political decision-making to trivia. That is ultimately the importance of preserving supply management systems in the place of a true commitment to measured protectionism that economists despise.

I remember at Yves Smith's place, someone (can't find the post) posited a sort of impossibility theorem. You can have two of these three things, but not all three: economic globalization, national sovereignty, and democracy. We are presently in the world in which we have economic globalization and national sovereignty; but it has meant that the ability of the people to collective decision making on their economic interest has been considerably stymied. The world that ideally should exist is one in which globalization and democracy reigns, but it requires us to give up national sovereignty (to global elected bodies or other forms of decision-making), and for various reasons we aren't ready to give it up. Consequently, if there's any political party we need, it's one that focuses on democracy and national economic sovereignty, at the expense of free trade and capital movement.

Democratic control of our food? Sorry, problematic. At its worst I see that as an extension of what it currently is in some cases - supply managed foods like dairy and restricted trade goods like wine and beer - as an exercise in protection to cater to powerful lobby groups, for their benefit not ours. At worst it becomes the tyranny of somebodies notion of whats good for you to eat or drink. I don't want the crowd deciding what I eat.

Well, you have a choice between that and being beholden to food suppliers over which you have no oversight or control, and food prices for the poor, etc, being subject to the vagaries of an international market with pretty much zero leverage to insist on equity and foresight. Essentially, the most fundamental aspect of human well-being taken out of democratic control into undemocratic control.

The crowd will in one way or another decide what you have available to eat within the bounds of biology/climate/geology. The question is, did you get a vote? This is true for a lot of other things.

Food sovereignty is meaningless from a security standpoint for luxuries like dairy, meat, wine, etc. We produce more than enough calories in Canada to feed ourselves in a pinch from grain production alone.

Yes, if you want to get scurvy and osteoporosis.

K:

Electronic expansion of M0 via extension by the Bank of Canada of the payment system to all citizens is a good start.

and

unfettered by government interference

Since the BoC == government inasmuch as the Feds == government, maybe even more so, I find the two quotes above contradictory.

Also, as far as I understood your proposal, you suggest that the commercial bank credit creation function should be excised: "Seignorage ... End it".
Is that what you are in fact proposing ?

Further:

I am proposing that private banks should compete for wholesale funding in the open market

But, that's exactly what the commercial banks are doing now.

I am confused.

"What (economist-promoted) economic globalization hath wrought is that it has crippled our ability to decide democratically on the economic common good. As such, it has effectively reduced political decision-making to trivia. That is ultimately the importance of preserving supply management systems in the place of a true commitment to measured protectionism that economists despise"

How has globalization crippled our ability to make democratic decision on the economic common good? Globalization isn't a force imposed upon us, it's a process we've decided (democratically, as it turns out) to embrace. If we wanted to we could reject globalization and pursue a policy of autarky. Mind you, the latter option would be a REALLY, REALLY, REALLY bad idea, and would have significant adverse consequences, but the existence of adverse consequences doesn't mean we can't choose that path (it does mean we SHOULDN't choose that path).

The same is true, on a lesser scale with supply management. Globalization doesn't prevent us from keeping supply management, if we want to, but we have to recognize that there are costs associated with maintaining the supply management system. The ability to import food from outside countries (made possible by globalization) raises the opportunity cost of maintaining the supply management system (because (a) ordinary Canadian pay more than they have to for basic food supplies - a shamefully regressive form of implicit taxation - and (b)the maintenance of the supply management system hinders our ability to negotiate trade concessions from our trading partners). If Canadians decide that the cost of preserving that system outweights the benefits of maintaining it (my own view) that is a democratic decision, not one imposed upon us by globalization (much less economists).

"Well, you have a choice between that and being beholden to food suppliers over which you have no oversight or control, and food prices for the poor, etc, being subject to the vagaries of an international market with pretty much zero leverage to insist on equity and foresight."

Curious, you don't want to subject the poor to the POSSIBILITY of high food prices caused by the "vagaries of an international market" (although, over the past century and a half, the international food market has, if anything, driven down the real price of food by allowing consumers to buy food products from the most efficient producers), but you do want to subject the poor to the CERTAINTY of high food prices caused by trade barriers and supply management? That's sort of odd reasoning, isn't it?

MM: some profound thoughts from a commenter April 23rd:

Economists, in my opinion, should be advocating opening up protected industries, providing incentives and brow beating of industry to invest in R&D and investments in productivity training and equipment, not constantly arguing for lower corporate taxes (using some contestable points) as the chosen path for Canada's continued and future prosperity, which appears to be the case with some. It starts to appear to outsiders as purely ideology.

http://tinyurl.com/2dlkd6a

:)

JvfM: Ha! I don't see it being an either-or situation. In fact, lowering corporate income taxes could be a way to make a reduction in protectionism more palatable to Canadian business. It's beer *and* pizza!

Cake, and eat it too!

Oops, I think I already said that.

vjk:  About two thirds of the liabilities of Canadian banks is deposits, of which about $450Bn is chequable (0% interest) and $750Bn savings (low interest).  This money is directly created by their lending activities. So most of their funding costs are vastly below the rate that they would be paying if they had to finance their lending from bond issuance at the risky free market rate rather than from government guaranteed money. M1 in particular represents a very large permanent endowment to the banks as a whole.

What I'm proposing is that everyone (individuals and businesses) should have a choice whether they want to keep their money on deposit at the Bank of Canada (just like the private banks) or on deposit at the private banks themselves.  And I don't think that providing a robust medium of exchange constitutes government interference in markets.  Once we give people a choice about where to put their money, we no longer have to guarantee private bank money (M1 and M2).  To the extent that some people would move their money to the BOC, the banks would have to raise new funds (from issuing bonds, BAs, equity, whatever) or sell assets (which is why I was proposing that, if necessary, as a temporary measure, CMHC could buy mortgages that it already guarantees anyways).

The banks should then be unfettered by government interference since there is no reason to regulate them when we don't guarantee their liabilities, and the money supply is no longer critically dependent on them.  All in all, less subsidy, less regulation, more freedom, more efficiency.

"The banks should then be unfettered by government interference since there is no reason to regulate them when we don't guarantee their liabilities, and the money supply is no longer critically dependent on them."

Would it really work that way? I'm not a trained economist, but I think people would still demand regulation. Maybe they would be wrong.

K:

Once we give people a choice about where to put their money, we no longer have to guarantee private bank money (M1 and M2).

What you suggest is similar to various "narrow banking" proposals.

What is interesting people already have this option of putting money elsewhere, without sponsoring M1 and M2 production by evil commercial banks. For example, Vanguard Treasury MMMF that invests in short-term US government securities(the US) is one of such options. They offer check-writing privileges and the arrangement is pretty close to "narrow banking" ideas, perhaps not as well developed, but it is there for those who want to use it.


I think it would be disastrous for an Economists Party to actually run the country because that would give economists way too many degrees of freedom to work with and they would never be able to make any decisions. I think the Economists Party would be great, though, as a junior partner in a coalition.

Bliktheterrible:  I hope it would work that way.  But to really make it work you also need to get rid of officially sanctioned rating agencies.  As long as investors and their representatives are removed from the analysis of their own investment decisions, you are going to have confidence crises.  So here is another proposal for the Economist Party:  decertify the rating agencies.  They serve issuers only and they have wreaked tremendous harm.

vjk:  You're right that people have "narrow banking" options.  But for the most part, they are not incentivized to use them.  It's the worst banks that offer the highest deposit rates, so if you're under the insurance limit the incentive is perverse (see S&L crisis).  And staying under the limit is not that hard it turns out.  My bank, for example, has a dizzying array of options (especially for a couple):  separate accounts, joint accounts, and a variety of separately insured subsidiaries.  You could probably insure $1M at one institution.  The core of the problem is the massive perverse incentives that result from deposit insurance (both for banks and depositors) and the implicit insurance that comes with subjecting the industry to capital rules.

"I think it would be disastrous for an Economists Party to actually run the country because that would give economists way too many degrees of freedom to work with and they would never be able to make any decisions."

Maybe if we limited membership to one-armed economists?

Isn't that a null set?

Mike, the thread of discussion seems to have gone way past supply management, but I'd flag that CCPA recently released a report looking a climate change and BC's food supply:
http://www.policyalternatives.ca/everybitecounts

We show data for different types of food and how self-reliant BC is for each. The supply managed areas are the ones that are close to 100%, so if food security is a policy objective (and I think it should be), then supply management should be considered. Ditto on farmer incomes.

The point is that economists assume a perfectly functioning market and that any intervention by government must be welfare reducing. But agriculture and food are super-complicated industries, and are full of market failures, from environmental pollutants and greenhouse gas emissions, to huge market concentration in most segments of the industry, and exteralities in terms of public health, worker safety, and so forth. So over-simplified analyses do not do us a favour, especially when there are multiple policy objectives; they just lead to knee-jerk arguments like the one against supply management.

But it is also true that most economists, by steeping their careers in a neoclassical fantasy world, "do not get it". I have run-down over here:
http://www.progressive-economics.ca/2010/11/09/pervasive-market-failures/

I saw that. On a personal level I find your comments funny, because my entire academic career (what little of it there is) is in studying the issues (externalities, imperfect competition) that you say economists ignore!

http://www.ivey.uwo.ca/faculty/Mike_Moffatt.htm

In general, I'd find these criticisms a lot more persuasive if people would actually bother creating models with imperfect information, incomplete markets, externalities and seeing what the outcomes are, rather than just foot-stomping and exclamations of "you dummies don't understand!"

"Isn't that a null set?"

Maybe a targetted subsidy for chainsaws could resolve that problem.

"The supply managed areas are the ones that are close to 100%",
Isn't that a sort of "sun rises in the east" kinda conclusion? Of course, we'll encourage domestic production of foodstuffs (and prop up farmer's incomes) if we make consumers pay twice the market price for those products.

Of course, I'd be curious how the CCPA squares "economic and social justice" (the purported foundational principals of the CCPA) with a seemingly regressive policy of raising (doubling) the price of basic groceries.

I think the point is that those models collapse when you add more than one market imperfection, though I think the Post-Keynesians have done a decent job of trying to build models on alternative assumptions. Is it better to have a flawed model that says something? Models can shed light by simplifying, but in an area as complicated as agriculture and food we should be careful about what conclusions we can draw.

Bob, you raise an important point. It is not obvious that food prices would go up, especially since the typical farmer only gets a small share of the sales price due to middlemen in our industrialized agriculture system. We are advocating for alternative distribution networks that have the potential for much greater economies of scale. But there is good case to made that they will rise. If you check out the paper we argue that hunger is mostly about a lack of income, which means living wages in the labour market and stronger income transfers (guaranteed income), both of which should be linked to the cost of food.

Furthermore, the cheaper prices that globalization has brought to food and other tradeable goods has hidden, unaccounted-for costs for which we will pay in the future. And by costs, I do not necessarily mean things in terms of money, but in terms of constraints that fall outside the scope of what economists normally seem to consider. For one thing, it has resulted a social and economic organisation that is not resilient to environmental changes, resource depletion, and so on. When food is no longer cheap (which will happen), the dislocation will be awful. A principled application of food sovereignty inherently promotes that kind of resilience, where long-term issues can be brought back into the realm of a less trivial politics.

In the United States, there is a large and growing underclass of people who can indeed buy cheap food both domestic and foreign, and other cheap goods, but suffer both from ill-health and the depletion of productive employment as the number of occupations that pay a wage that allows for better food decreases, as a necessary result of the globalization that brought the cheap food. Not everyone can or should go into finance...

Mike Moffatt can complain that people who criticize the models of economists should build their own. On whose terms, with whose concepts? Those of economists? Many of us believe that the concepts that underlie mainstream economics are not sufficiently developed to support a science that can be used responsibly in policy recommendations. I'm not convinced that there can even be such a science. How do you quantify the relationship between political rights and wealth distribution?

Insofar as the transnational capitalist class is completely disinclined towards the kinds of direct wealth transfers that left-liberal-ish/centrist economists think are welfare-increasing, unfortunately the position of anyone who wants to prevent the recurrent immiseration of what middle class managed to claw its way up after WWII must be highly inclined to autarky. If capital won't cooperate, it has to be imprisoned. And we're seeing, what with austerity in Europe, etc, that it will not cooperate. Talk of economic management through direct wealth transfer is hollow in that instance; the point of supply management is to manage supply.

P.S.
"Benefits in cash not kind."

My answer to that is NOT ALWAYS. Why? Because, some adults aren't adult. For instance if you give families money to look after kids, in some families, adicted or otherwise irresponsible adults, will steal some of it.

As regards agricultural subsidies, I'm sort of in two minds about that. I think that the world needs an oversupply (and stockpiles) of food, and agricultural subsidies sort of ensured that. I don't think the market left to itself will ensure that (power blackouts anyone). The market always tends to maximise efficiency, sometimes at the expense of resiliance (because nobody pays for the resiliance). The recent volatility of grain prices are an indication of what happens when buffers get too low. Imagine what would happen if next year there was another Krakatoa.

A policy is considered sensible if it yields a Kaldor-Hicks improvement over the most likely alternative for the bottome p% of the population affected for some 0

...for some p between 0 and 100.

Here's a piece about optimal tax policy:
http://www.economist.com/node/17461040?story_id=17461040

cash transfers:
http://www.newsweek.com/2010/10/25/the-new-fix-for-poverty-give-cash-to-the-poor.html

End fossil fuel subsidies.
http://www.economist.com/blogs/newsbook/2010/11/fossil-fuel_subsidies

The comments to this entry are closed.

Search this site

  • Google

    WWW
    worthwhile.typepad.com
Blog powered by Typepad