« Why has (private) debt increased? | Main | Difficulty with comments »

Comments

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

Well, glad to see somethings never change. Is it too much to ask for the front runner in the NDP leadership race to come up with some innovative and sensible tax policies, instead of going back to the usual NDP well?

He's also proposing to (eventually) fully tax capital gains (subject to some sort of adjustment for inflation - not sure how he thinks that can be administered) to tax "speculative quick flips" as ordinary income. He probably doesn't appreciate that "speculative quick flips" are already taxed as ordinary income (if you buy and sell securities in quick succession the CRA will almost certainly take the position that you're trading on income account and tax you accordingly). It's also not clear how this will reflect corporate level tax.

Speaking of which, he's proposing a 47% increase in the federal corporate tax rate. He expect that that will bring in an extra $11 billion in revenue. It isn't obvious that revenue from corporate income tax has fallen by $11 billion as rates have fallen over the last 6 years or so (or, if they have, whether that fall was a result of decreasing tax rates or the massive recession), so it's not clear why he thinks that revenue would rise if those corporate tax cuts were reversed. But, hey, why get into that?

Finally, he's proposing to elimiate the preferential treatment of employee stock options. Fair enough as far as it goes (I can go eitherways on that point), but if you're going to treat stock options the same as other forms of compensation, good policy would suggest that you have to allow corporations to deduct the "cost" of the benefit received by employers. If, the net effect for the fisc will probably be minimal (if not, no one will issue stock options).

On the other hand, his proposlas, if implemented will create lots of demand for tax lawyers, so maybe I shouldn't discourage him!

Is it also too much to point out that successful social democratic countries have generally take the exact opposite approach proposed by Topp with respect to taxing capital gains and corporations? Sweden, for example, taxes capital gains at a lower rate than employment income (30%, not far off the 23% top marginal rate in Ontario, and roughly 50% of the rate on employment income) and taxes corporations at rates that are comparable to what we do - 26.3%, which isn't far off the 25% overall rate that Ottawa is trying to push the provinces to (and which Ontario, BC and Alberta are approaching).

But, hey, why learn from their experience, what do the Swedes know about successful social democracies.

I have taken up the call and was *shocked* to generate an estimate that completely agrees with Topp's. But, I have also generated another estimate of $2 billion. It depends on the details of the plan.

Using the 2006 census of Canada (micro files), there are 5773 observations with total taxable income greater than or equal to $250,000. The sampling weight brings that to about 213000 Canadians. Six percentage points of the total income about 250k of this group (scaled up by the sampling weight) $3 billion.

Now that was using *total* income, and capital gains for example should not be included. Using only employment income in the calculation yields $1.93 billion raise.

However, this is with the 2006 census... incomes have certainly grown since then.

This also all neglects incentive effects (earning less income in response to the higher taxes). But, neglecting that, I don't think there is much evidence to suggest $3 billion is an inaccurate number.

"But, neglecting that, I don't think there is much evidence to suggest $3 billion is an inaccurate number."

Yeah, but that's a big caveat. That's like a company forcasting it's revenue on the basis that demand won't respond to prices: "Hey guys, if we charge a million dollars for toothbrushes we'll all be richer than Croesus". The forecast may be reasonable given the assumption, but the assumption is nuts.

I agree, it is a big caveat... and I was searching around for an estimate. There are two studies I know of for the marginal cost of funds for the government of Canada. 1.25 from Campbell (1975) and 1.38 from Dahlby (1994). Across countries, the evidence is between 1.2 and 1.5, depending on who you look at.

More appropriate for this question is the elasticity of taxable income with respect to income tax rates. A recent piece by Romer and Romer (2011) find about 0.2. So, increase the tax rate from 29 to 35 will be expected to reduce taxable income in those groups by 4%. So, deflate the previous estimate by 4%.... so instead of 3, it's 2.88... instead of 1.93 it's 1.85.

Anyone have better estimates?

Yes, but as Romer and Romer note, their number is at the low end of the range of income elasticities identified in other studies of the post-war era. Those studies, they report, suggest an income elasticity at the top end of between 0.5 and 0.8. That's a big range.

And keep in mind, what matters in figuring out the revenue impact of a tax increase isn't the elasticity of taxable income (which is what Romer and Romer measure), but the elasticity of income subject to the top marginal rate (i.e., the income above $250k, in this example). Using the Romer numbers, a 20% increase in the tax rate may translate into a 4% reduction in the taxable income of people in the top marginal rate, but that translates into a more than 4% decrease in taxable income subject to the top marginal rate(i.e., a 4% reduction in the income of someone making $300K a year is a 24% reduction in the income over $250K subject to the top marginal rate - that's a specific example, but it applies more generally). The extent that there are a number of members of the high income group clustered just above $250k (which you'd sort of expect) that would significantly reduce the expected tax haul from the new tax bracket.

Kudos to Kevin Milligan for pulling up this estimate of the elasticity of taxable income from the department of finance, which suggests an number of 0.62 to 0.72 (depending on methodology) for Canadian taxpayers earning more than $150K over the late 90's and early '00s. (http://www.fin.gc.ca/taxexp-depfisc/2010/taxexp1003-eng.asp#tocpart2-11)

Those are both excellent points. In fact, your specific example is very representative. I incorporated a revised elasticity number of 0.7 into the do-file, and look at the change in taxable income subject to the top rate. For many individuals (nearly 14,000) they fall out of the 250k+ category all together. Simple unweighted average change in income subject to 250k+ bracket, for those who remain, is about 48% reduction (29% when weighted by income). So, you're right the effect can be big.

Putting that all into the calculation of the tax revenue... using employment income, I find the tax revenue raised would be $1.3 billion. Or $2 billion using total income (definitely now the upper estimate).

Hi Trevor and Bob,

I won't quibble with the numbers in your 12:58 post--I think the most important thing is to acknowledge that there will be some behavioural response.

I don't know why assuming an elasticity is zero is the 'safe' assumption. I just wish that Topp put a little more meat into his footnotes. I need to see the math!

Trevor "I find the tax revenue raised would be $1.3 billion. Or $2 billion using total income (definitely now the upper estimate)."

That sounds about right. You should offer to help the NDP with their tax policies! Although given that result, they won't want it.

Kevin: "I think the most important thing is to acknowledge that there will be some behavioural response."

Whoa, whoa, people respond to incentives? The world is complex? That's crazy talk. Granted, I have low expectations from politicians generally, but NDP politicians seem to live in a world of their own (which, given the general disingenuity of their Conservative and Liberal counterparts, takes some doing).

And the disturbing thing is that I don't think Brian Topp is being disingenous. If he (and his advisors) say that the proposed tax increase will generate $3 billion for "productive investment (what dat?), I'm sure he believes it. He's not just snowing us with BS numbers. If he says that, under his regime, "speculative quick flips" would be taxed as ordinary income, I'm sure he doesn't know that they already are. That worries me, and it worries me more that I don't think Topp is an outlier amongst NDP leadership candidates.

Bob: The thing I think is funny is that assuming a zero elasticity is a funny thing for an NDPer. If you think rich people are

a) mean greedy bastards who will do anything to avoid tax, you would expect a substantial behavioural response.

b) OTOH, if you think rich people are just really nice and will happily fork over more dollars to the state for redistribution to whomever, then you might expect a zero response.

When I hear the NDP rhetoric demonizing the '1%', I wonder why they then assume high income people are type (b).

Obviously, there are some type a and some type b out there. On average, the elasticity is somewhere between 0.25 and 0.75. But it isn't zero.

If the NDP go down this path, I think it will mean electoral ruin. How can their takeaway from the last federal election be to run to the left?

I suspect the reasons for that disconnect is that most NDPers will assume that someone who uses the expression "taxable income elasticity" is part of the problem and should be tarred and feathered (or the new age social democratic equivalent - maybe made to sit in the corner of shame and reconciliation) at the first available opportunity. The minute you start talking about the type (a) people and the type (b) people, you've lost the audience. These, after all, are the same people who often equate "economist" with "right-wing". The Liberals and Tories may misunderstand economic concepts, they certain abuse them or ignore them when convenient, but I don't think you find the same instinctive hostility to mainstream economic theory in the other parties as you find in the NDP.

Well, I am a paid-up NDP member so I am happy to provide a target for this thread. ;)

FWIW I am leaning toward Peggy Nash instead. Aside from economics, it seems clear to me a leader has to have already learned basic political skills before they take the leadership. Iggy tried to learn basic House politics and be a party leader at the same time and it was too much. The other side will eat a raw rookie for lunch. We can't have raw rookies as leaders anymore, so Brian Topp is out.

Also I support the GST but nobody pays attention to the GST Credits. Shame nobody wants to talk about them.

Determinant,

I think the problem facing Topp is the same as that facing all the other NDP candiates. No matter how smart you are, or experienced you are, or tough you are, it's different being the leader. Look back over the past two decades in Canadian politics and nearly every first-time political leader, of all stripes, has had a rough go of it in their first campaign. In Ontario, Hudak, Tory, Eves, McGuinty, McCleod, and Harris all had rough rides in their first campaigns. In BC, Gordon Campbell blew his first election, as did Jean Charest in Quebec. Federally, Dion and Iggy had rough times, but neither Martin nor Harper had particularly successful first campaigns (Martin lost his majority, Harper blew his campaign in the last week), Day's 2000 campaign was a disaster, and Kim Campbell, well, need I say more (Jean Charest '97 campaign was relatively succesful - I remember joking with him that at that rate, the Tories would have 200 seats coming out of the next election - but he really couldn't do much worse).

It's easy to say that Iggy had no political background, but no one can accuse Martin or Dion of being "raw cookies", or Eves or Hudak, Campbell or Charest for that matter. Its the experience as leader that matters. For what it's worth, if the NDP wants to succeed, they have to play the long game: expect to lose the next election, but aim to secure their base (if need be by wiping out or absorbing the Liberals and/or the Bloc) to make a successful run in 2019. And for god's sake, pick a leader who knows enough to know that he or she doesn't know about taxes and that he or she should hire some real experts to help them come up with some credible policies.

I firmly believe in playing the long game. A "win" next time is to keep the Liberals in third place and hold on to Opposition status. Of course that would make Harper the most successful Tory leader since John A. McDonald electorally, but there's no such thing as a free lunch.

Harper and Iggy were both well-educated men, but Harper put in time as a regular MP and learned how to operate in the House, in front of the camera and how to conduct himself as a politician. Then be became leader. I agree being a leader is different, but Harper only tried to do one thing at a time. Iggy tried to learn to be a line politician and a leader at the same time and it was simply too much. It's too much for anyone.

In addition to being a sitting MP Peggy Nash is also fluent in French. The days of unilingual party leaders are over, gone, they are never coming back. This is not a negotiable point. If one has front-bench aspirations, learn French/English.

Lastly, would you like to join my groundswell internet campaign to sign Stephen Gordon up to the Broadbent Institute, the NDP's new think-tank (think Fraser Institute or CD Howe Institute)? Professor Gordon did write that excellent series of blog articles on "A serious economic policy for the NDP" last year. I am being entirely serious. Modesty is not going to get Stephen Gordon that academic seat that I think he deserves and the NDP frankly needs to have him sit in. He is a serious economist and deserves to be listened to.

Bob Smith "absorbing the Liberals and/or the Bloc)"
Any Liberal DNA will be toxic in QC whatever the voter's bent. (except among West Island angryphones). And absorbing the Bloc, even simply their voters, will ruin them in ROC as any real governing power by a franco is anathema to the canadian body politics (and remember that all "Québec power" was done by Trudeau in english against Québec...)

Uh, the Liberals are as toxic to the NDP as the Tories are.

No argument about the Liberals in Quebec.

One quibble though about the Bloc, Jacques. It's not the francophone thing that's toxic in the ROC, it's the separatism thing. I often found myself wishing Gilles Duceppe would have ditched the sovereignty thing. I would have voted for him/his party if they ran in Ontario. But alas, it was not to be.

Anyway, back to economic advice for the NDP.

"but there's no such thing as a free lunch.".

Well, there goes NDP fiscal policy for the last 30 years! :)

Seriously, though, the Broadbent institute could be a good idea, provided that it tries to seriously address policy issues and doesn't just serve as a mouthpiece for the usual NDP nostrums. It might provide the Canadian left with the intellectual muscle to slaughter various sacred cows and bring the NDP into the 21st century.

Certainly I think it could go a long way to establishing its policy credibility if they brought serious economists like Stephen or Kevin to talk about how economic theory informs smart "left-wing" policy. (I don't know if their ideological dispositions would incline them to do that, but they'd be doing Canada a real public service, if only because the threat of sensible NDP policy might compel the Tories to sharpen their policies).

A couple of comments:

I think among the current NDP leadership candidates Tom Mulcair has by far the most real experience in government(being a cabinet minister in the Charest provincial Liberal govt, a govt/party that has slightly lower corporate tax rates than Dalton McGuinty's Liberals and introduced an HST like tax back in 1990). However, Mulcair appears to have a significant amount of baggage with not just the general public but also many NDP members which seems to rule him out. My personal opinion is that in many ways the NDP is actually the most "controlling" of the three national parties in terms of their MP's ideological viewpoints. I wonder where are the Michael Chong's, Hugh Segal's or the provincial equivilents of the Liz Witmer's or a whole host of Alberta provincial PC red tories such as Redford/Horner/Kennedy-Glans et all. It just seems like the Conservatives allow far more ideological difference in their ranks and the Liberals for that matter (see Keith Martin and private health care) than do the NDP. The only people I have ever seen that have been allowed to stray from traditional NDP orthodoxy and stay in the party are the likes of Dexter and Mulcair both of which are fairly mistrusted by the party faithful.

It comes from being small and a third party for so long, though I don't know how broad the provincial NDP parties are in BC, Saskatchewan and Manitoba, all of whom have formed governments.

Mulcair strikes me as the kind of attack dog who is useful as a cabinet minister, see John Baird, but not as a leader. Though what he thinks the Quebec results entitles him to is anyone's guess. But politics is such a fickle business.

BTW is it bad if I think that some of the NDP's MP's are drop-dead gorgeous? Seriously, the Honourable Member for Salaberry-de-Valleyfield is dreamy.

The Broadbent idea is an interesting one, but I don't think NDP want much to do with serious economists and vice versa. I suspect the Paul Summerville experience had a chilling effect.

Tim: " I wonder where are the Michael Chong's, Hugh Segal's or the provincial equivilents of the Liz Witmer's or a whole host of Alberta provincial PC red tories such as Redford/Horner/Kennedy-Glans et all. It just seems like the Conservatives allow far more ideological difference in their ranks and the Liberals for that matter (see Keith Martin and private health care) than do the NDP."

In fairness, I think there is a fair bit of diversity in the NDP, but too much of it is spread out over the extreme left of the political spectrum (seriously, if you've ever watched an NDP convention, the NDP tolerates members with some seriously disturbing world views, far more so than anything I've ever seen on the right), whereas the range of opinion within the Tories and Liberals tends to stretch accross the mainstream of the political spectrum.

Mike: "The Broadbent idea is an interesting one, but I don't think NDP want much to do with serious economists and vice versa."

Sadly, that's probably true, and more's the pity. Still, I wonder if the proximity to power (or the prospect of never attaining it) might cause NDP thinking on that point to shift. Certainly, on the right, the prospect of an eternity in opposition forced a reassessment of how the Reform Party (another prairie populist party) approached politics. And, although hard-core NDPers will hate the comparison, the British Labour party (which was every bit as recalcitrant as the NDP, if not more so) managed to re-invent itself after a 18 years of electoral oblivion and Tory rule. If the NDP is serious about ever forming a government, that's the sort of change they'll have to make.

That's certainly possible. I'd give the Nova Scotia NDP government relatively high marks for economic sanity (relative to other provincial governments across the country).

One of the more interesting stories I heard a few months ago was that the NDP was interested in increasing organizational ties to the UK and Australian Labor parties. While I won't comment on the UK I find it rather interesting that the NDP would like to increase its linkage with Australian Labor as the ALP while having similar historical linage as the NDP since 1983 and the start of the Hawke/Keating goverments has moved far far away from the NDP and much closer to the center in terms of economic policy. In fact there is a case to made that the ALP is one of the most right wing free market centre left parties in the world much more than even the US Democrats.(I actually found Barack Obama recent visit to Australia rather interesting as despite the commardarie that should seem to exist with Julia Gillard many of her policies have been rejected by Obama) One of the stories never told in Canada that I think should be told is the degree to which Australian which was once a much poorer country than Canada has almost caught up in terms of wealth over the last thirty years due to sounder economic policy make by both Australian Labor and Liberal govts.

Tim:
"Australian which was once a much poorer country than Canada has almost caught up in terms of wealth over the last thirty years due to sounder economic policy make by both Australian Labor and Liberal govts."
...and strong Chinese demand for iron ore. Same as in my bailiwick...

Re NDP/left-wing hostility to economics: there's little understanding here as to how that happened and how economists may have contributed to that. I happen to think (unsurprisingly) that there was/is some justification for it. Obviously, on this blog, I understand perfectly well that the assumption is that mainstream economics is "correct", despite the fact that it seems to contain assumptions about people that most of the left knows is wrong.

Also, I don't know how someone can look upon New Labour as a left-wing success story with a straight face. It was a success story, arguably, but it was not a left-wing success story by any means. It was a catastrophe whose real effects are being cashed out as we speak. If it had been a left-wing success story, it would have started with a complete repudiation of the Thatcher legacy. Which it didn't. If the NDP serves any function it serves as an incubator for the resurrection of genuinely left-wing policy---which, by the way, is not just naive redistributionism as some of our esteemed hosts seem to think.

"If the NDP serves any function it serves as an incubator for the resurrection of genuinely left-wing policy"

That's certainly a role that the hard left has often pushed for the NDP, that as the "conscience of parliament". And it's a role in which the NDP had some influence in the 1970's, both federally and in Ontario (though, it's worth recalling that many of the policies pushed by the NDP then were not particularly left-wing by the standards of the day). That said, it's also a role which has, as often as not, left the NDP outside of government. The Labour example is telling, had the Labour party maintained it's traditional attachment to hard-left policies, it likely wouldn't have governed the UK for the last 13 years. It's the nature of the first-past-the-post system, you can have ideological purity or electoral success, but it's hard to have both (at least for any length of time). On the right, the Conservatives made their peace with that reality, query whether the NDP will do the same.

"I understand perfectly well that the assumption is that mainstream economics is "correct", despite the fact that it seems to contain assumptions about people that most of the left knows is wrong"

Well, let's bring this back to the original discussion. The statement that taxable incomes responds to tax rates isn't an "assumption" made by mainstream economics, it's an empirical observation supported by countless studies, over dozens of countries, covering numerous time periods. To be sure, there's significant variation observed in how responsive taxable income is to tax rates (which varies from country to country, and by income bracket), but no one says its zero. The NDP may not like "mainstream economics", but it's not more justified or sensible for them to ignore that sort of empirical observation in forming their tax policy (or, in other areas, the empirical observations about gains from free trade, the adverse effects of rent control or minimum wage laws, etc.) than it is to ignore the observation that apples fall down.

Sucessful political parties (on the left and right), don't dismiss those observations, they build policies around them. If income taxes erode the tax base, you look for a different tax base to generate revenue (surely that's why the Europeans rely heavily on value added taxes to fund the welfare stthat the NDP aspires to emulate). If there are net gains from free trade (as most empirical evidence suggests there is), rather than rail against it, propose policies to redistribute those gains to compensate the losers from free trade. If rent control and minimum wages laws adversely effect the supply of housing or the demand for labour (and there is compelling evidence that they do), look to other policies to promote housing or employment (say, rent supplements, or refundable tax credits for earned income or other income supplements). The alternative proposals I'm mentioning here are well within the canon of mainstream economics, and entirely consistent with left-wing policy objectives.

The problem with the left (and the NDP in particular) is that it takes the criticism of its specific POLICIES (taxing the incomes of the rich, opposing free trade, rent control, minimum wage law) by economists as attacks on the OBJECTIVES (redistributing income, providing affordable housing and decent incomes) it wishes to promote. In reality, I think many economists have no problem with the OBJECTIVES of the left (and the notion that economists are a collection of hard-right neo-conservatives is laughable to anyone who's spend time in your average economics department), they just think there are more efficient and more effective means of achieving those objectives.

Worth mentioning : someone adept at SPSD/M with 5000$ to spare on the software. :o)

Interesting post!

Bob: I've been away and didn't have a chance to respond to your comment, and I'll try to do it tomorrow even though this thread is stale, because I think that that is a central issue. I simply don't agree with you about what the boundary between "policies" and "outcomes" is---hence my reference to "naive redistributionism". Or even whether there even is a clear boundary between the two. Insofar as economists insist on failing to understand what the goals actually are, and therefore proposing policies that make it harder to achieve those goals, the left-wing identification of economics as a tool for right-wing ideological promulgation will continue to be correct.

Take free trade. Does Real Existing free trade make it harder or easier to shackle capital and subject it to democratic oversight? It appears that it makes it harder...

Free trade doesn't make it harder to "shackle capital and subject it to democratic oversight", it is a policy decision, made by democractic governments, NOT to shackle the movement of goods and capital, based on the general observation that doing so tends to undermine the wealth of nations. This is part of the problem with left wing thought on free trade, they see it as something exogenous that is imposed upon sovereign states (consistent with a loss of sovereignty), rather than a policy choice by democratic governments on how to exercise their sovereignty.

That said, in one sense, to the extent that free trade creates net benefits to society, it does make it harder to undo it. But that's a function of the benefits of free trade (and the costs of the alternatives) - which makes that critique an odd one for opponents of free trade. I suppose good policy does make it harder to implement bad policy, but that's hardly a criticism of the good policy.

Mandos:

I would argue the problem with many free trade agreements is that capital and labor are on uneven playing field vis a vis labor mobility vs capital mobility. There are exceptions to this the New Zealand Australia Closer Economic Relations Agreement for example(the issue of Kiwi's voting with their feet and moving to Australia has been a real political problem in the New Zealand for many years now). I would also argue in the Canadian context with the strong property and civil rights powers accorded to the provinces under the constitution that in fact the federal government has very little power to shackle capital and attempts to do so i.e. National Energy Program lead to almost state of political war between Ottawa and particular provincial governments. In Canada though if an individual who grew up in Alberta and don't like the power the oil and gas industry has in that province you are perfectly free to move to BC or vice versa something that isn't available in the context of most free trade agreements.

Tim:
I am perfectly free to move between the branch-plant oil emirate of Alberta and Lotusland. I can't escape that easily the branch plant emirate of Canada under Harper bin Suncor.

That said, in one sense, to the extent that free trade creates net benefits to society, it does make it harder to undo it. But that's a function of the benefits of free trade (and the costs of the alternatives) - which makes that critique an odd one for opponents of free trade. I suppose good policy does make it harder to implement bad policy, but that's hardly a criticism of the good policy.

Except that, I don't agree that Real Existing Free Trade creates a net benefit to society, precisely because it makes it harder to use policy to construct alternative societies, and therefore by definition it is not a benefit. Precisely because "benefit" is defined under particular terms that I don't believe are sustainable or responsible, and because the possibility of backing out becomes constrained by vested interests. And because it is very hard to get people to accept a short-term penalty even when, in the Long Run In Which Some Of Us Are Dead, the overall trend is to create further inequality of distribution of relative wealth ("relative" being redundant here, as wealth is only relative).

I have had free trade explained to me many times, including on this blog, and I'm pretty sure I get the argument. I simply don't agree that it's a good thing. I'm pretty sure my reasons are sound and borne out by history, relative to my values.

Free trade locks us into capitalism, into labor arbitrage and worse, environmental and regulatory arbitrage. Capital must be chained if we are to have a cooperative and democratic society, and the first step in managing the distribution of wealth is to prevent it from fleeing of its own accord.

"Democratic", by the way, doesn't mean "people voting for parties." I look at the USA, and I am not convinced it is a "democracy". Economists think that no one listens to them; but I see the way in which democracy in the USA is deeply constrained as an inevitable result of following the advice of economists in the things that the powers that be are interested in.

I don't want redistribution post hoc. If it's really the case that, I don't know, Lloyd Blankfein really brings value into the world commensurate to his compensation, then it's practically a crime to take it away from him. But if it's not the case, then he should never have made that money in the first place.

Well, you know, we'd all love to see the plan.

Well, for starters, impose tariffs that compensate for labor/environmental/other regulatory differences between polities, so that capital can't run away when we make those impositions. Then we'll see what's possible and what isn't.

Mandos: "Obviously, on this blog, I understand perfectly well that the assumption is that mainstream economics is "correct", despite the fact that it seems to contain assumptions about people that most of the left knows is wrong."

What a bizarre comment. All models in all scientific disciplines contain false ("wrong") assumptions. All economists---every single one of them---know that economic models contain false assumptions. It certainly isn't some secret only known to the "left." You might also note that (1) lots of mainstream economists do hold left-wing political philosophies and (2) lots of people with right-wing political philosophies think mainstream economics is "incorrect." If your political philosophy is driving your opinion of methodology in economics, you're doing it wrong.


"I have had free trade explained to me many times, including on this blog, and I'm pretty sure I get the argument."

Yeah, a few blog posts is all you need to fully understand international economics. Hey, you know what would be great? If you were to hijack a few more threads in which to extol your views on this matter, because there is absolutely nothing that thrills economists more than listening to amateur opinions on international trade.

What a bizarre comment. All models in all scientific disciplines contain false ("wrong") assumptions. All economists---every single one of them---know that economic models contain false assumptions. It certainly isn't some secret only known to the "left." You might also note that (1) lots of mainstream economists do hold left-wing political philosophies and (2) lots of people with right-wing political philosophies think mainstream economics is "incorrect." If your political philosophy is driving your opinion of methodology in economics, you're doing it wrong.

The only thing that can drive an opinion of methodology in something that has to do with human social arrangements is political philosophy. If you think that your methodological assumptions don't derive from a political philosophy, you're wearing blinders. Any "left-wing" economist who accepts those assumptions are either (a) not or (b) self-deluded.

For example, the discussion on the NGDP threads that ended in a discussion of "malevolent" utilitarian optimization---that is, that significant economic actors might choose to act in a self-destructive way if it harms other even more.

Yeah, a few blog posts is all you need to fully understand international economics. Hey, you know what would be great? If you were to hijack a few more threads in which to extol your views on this matter, because there is absolutely nothing that thrills economists more than listening to amateur opinions on international trade.

You know what, Chris? Some economists (and you in particular) like to complain that economics is a place where amateurs feel as qualified to opine as professionals. Well, guess what, I have news for you: it is! That is because, it is not a science, and certainly not a science as in physics or biology or otherwise.

(I have never heard a biologist complain about e.g. creationists because they are amateurs. They complain about them because they are creationists.)

I'm sorry, Chris, you feel put upon. Well, not really. Actually, what I want to do is post the "Not Yours" pony picture.

The authors of this blog regularly complain about the NDP when the NDP behaves the way that a populist left-wing party is supposed to behave. And you're offended that there is push-back?

Populism - left or right - is almost by definition poorly-thought-out.

Mandos, if you're trying to claim that you have a grasp of economics that is equal to someone who has been trained in it, then you're going to have to move beyond repeating long-exploded fallacies. This isn't arrogance; arrogance is thinking you can out-think us all from a standing start.

More generally, the list of threads you end up hijacking in order to say the same thing is getting a bit long.

In the Canadian context there is actually nothing in the Constitution the mandates "capitalism" per say as the economic system of the country per the fact that powers of property and civil rights belong to the provinces. During the 1982 repatriation negotiations several provinces in fact opposed and rejected an attempt to add the protection of private property to the Charter of Rights and Freedoms. More recently in fact when Newfoundland nationalized the Abbibiti Bowater Pulp and Paper mill and the US parent of Abbitti challenged the decision under the NAFTA there were able to win a monetary settlement from the Federal Government but both the feds and Abbitti were unable to reverse the N&L decision as it fell under the province's jurisdiction of property and civil rights and the province is not a party to NAFTA or any other trade treaty.

Going back even further some provinces such as Saskatchewan historically maintained very high levels of public ownership in the economy while others such as Alberta were completely the opposite. Now to be fair Canada is a very unique country in terms of its level of federalism and the relative independence of the judiciary in interpreting issue of allocation of powers in a way that is not always popular or supported by the government of the day in Ottawa.

More specifically to Mandos point about the US and economists I would argue the economists in the US actually have very little power compared to Canada outside of a few high profile hired guns out of academia like Brad DeLong, Krugman, and Greg Mankiw. For one thing the US does not have the same tradition of a professional civil service as Canada outside of the military and law enforcement. In Canada I know the current and past Chief Clerk's of the Privy Council(Wouters and Lynch) are both economists whereas there is no equivilent of the Chief Clerk and Cabinet Secretary position(at both the state/provincial and federal levels in the US) and no one outside of the US Joint Chiefs at the civil service/non political level has anywhere the policy influence of a Canadian Deputy Minister in the their departments.

Populism is a necessary player in a democratic society. It increases when the system doesn't, well, respond to a popular consensus.

I haven't repeated long-exploded fallacies. I merely point out that those fallacies aren't fallacies---that is, they're only fallacies when looked at from a particular point of view. Stephen, you've written countless posts on why the NDP supports policies that aren't always downwardly redistributive. I'm willing to concede that you are right on all of them. But I have attempted to point out to you that downward redistribution is only means and not a end to a politics goal. I mean, right now, Chris has a post up complaining about supply management. I am willing to concede his point...up to the point where the implied answer is to not manage supply.

Whenever the left bumps up against mainstream economics, we bump up against a hostile force that has an unduly large megaphone and no understanding of or interest in understanding what our goals actually are. So I'm justified in believing that you have no better idea than I, but way too much influence.

More recently in fact when Newfoundland nationalized the Abbibiti Bowater Pulp and Paper mill and the US parent of Abbitti challenged the decision under the NAFTA there were able to win a monetary settlement from the Federal Government but both the feds and Abbitti were unable to reverse the N&L decision as it fell under the province's jurisdiction of property and civil rights and the province is not a party to NAFTA or any other trade treaty.

The very fact that NAFTA legitimizes such a lawsuit against the federal government is deeply wrong. Even if it were somehow downwardly redistributive, it would *still* be deeply wrong. Immoral.

What is "fallacious" about that?

And the OP is a post on yet another criticism of the NDP. Which led to Bob Smith making a, well, "fallacious" criticism of the NDP as a whole. If you were looking for a derailment, it started at that point, if not at the OP itself!

On the subject of the NDP, I note that the NDP is having its first Leadership Debate on Sunday. The topic is Economics. May I humbly request that WCI have a thread on the topic? It would be even better if say Stephen or Nick could review the debate and offer us their informed opinion.

The debate will be podcast so it can be reviewed later at Stephen's or Nick's convenience.

Seeing as we've been kicking the NDP ball around, how about a proper game?

I look forward to WCI's punditry on the topic.

I don't think so. I'll probably read and comment on the leader platforms, but I never watch those sorts of debates.

Ah well.

Yes, I realize the high frequency of howlers and nutty ideas in a short period of time may be off-putting.

One of the things going on here is that Gordon et al are missing the point. The reason to go to a higher tax rate for corporations is not to generate an optimal government income, it's to reduce corporate power. If you are going to compare Canada to the Scandanavian countries the first thing to note is not the tax code, it's the institutional power relations. They are very different. Different electoral systems, stronger unions, sector bargaining, union board representation are all more important than taxes. Optimizing tax structure is the end game, not the opening.

In order for me to take that seriously, you need

a) A meaningful definition of 'corporate power'.
b) An explanation of how higher corp taxes would reduce it.

"that is, they're only fallacies when looked at from a particular point of view."

What "point of view" would that be? Sobriety?

In my defence, m'lord, I checked my lefty goggles at the door of this thread.

'One of the things going on here is that Gordon et al are missing the point. The reason to go to a higher tax rate for corporations is not to generate an optimal government income, it's to reduce corporate power. If you are going to compare Canada to the Scandanavian countries the first thing to note is not the tax code, it's the institutional power relations. They are very different. Different electoral systems, stronger unions, sector bargaining, union board representation are all more important than taxes. Optimizing tax structure is the end game, not the opening.’

This statement is an example why of I have a lot of respect for economics as an analytical discipline. The problem with this statement and others by Mandos et al is it’s a bunch of unsubstantiated assertions with no logical coherence or empirical foundation. I’m not a fan of economists making normative statements appear to be positive one but at least economics as a discipline has a analytical framework that (generally) allow economists to make arguments that are not half-assed reasoning and when they do make such arguments they’re ripped for it by their own kind.

I think the problem is largely with c-suite managers and their buddies on the board who face totally perverse incentives armed with other peoples money and assets.

I'm not at all convinced that a plurality of shareholders are *really* thinking that those c-suite comp packages are the best use of firms money... but what are you gonna do? When was the last time any of us voted our shares? And even if we did, would it make any difference?

That was Jim Rootham, not me, re corporate taxes. For the record, that's one of the issues on which I have been willing to be partly convinced (ie into at minimum agnosticism), because it's one of those issues on which one can achieve the same ends by other means. Nick's posts about central bank behaviour have been very useful and educational in that regard, and would say that at least he partly takes the time to understand the objections on their own terms, and present a case that addresses the actual issues.

My major objection---since pretty much Stephen's first post at babble like, 10 years ago---hasn't been that economists have illogical arguments. It's been that they haven't addressed the issues, and start from a conceptual ontology of the universe that largely favours the right-wing. You can have all the sound analysis you want, but it's not worth a hill of beans if it's derived from a view of the universe that already assumes the conclusion. (And whose empirical basis is extraordinarily poor compared to any other science making as tendentious a set of claims.)

The frustrating part is that Stephen's main and repeated accusation towards left-wing policies is that they're sometimes not downwardly redistributive. Well, of course they aren't---there's even a whole school of thought (I don't subscribe to it personally) that downward redistribution is actually actively harmful under capitalism because it reinforces and legitimizes capitalist structures. If we set the end goal, instead, towards maximizing labour's control over the means of production, ie, the classic leftist goal, then very many things in the economist consensus are automatically suspect, and it's really up to economists to show that, in the real world, they aren't. Tell me, is it a "long-exploded fallacy" that Real Existing Free Trade hurts organized labour's ability to bargain? I don't know how the left wing became confused with a charity organization.

(Some people are attracted to the appearance of formal analysis, but there are domains in this world where it is neither possible nor reliable nor better than informal heuristics. Predicting collective outcomes from large numbers of individual autonomous agents is one of those areas, if we want to talk math...)

Tell me, is it a "long-exploded fallacy" that Real Existing Free Trade hurts organized labour's ability to bargain?

Yes. What free trade does is reduce the monopoly or oligopoly rents earned by corporations that labour unions could bargain over. Absent those rents, long-run wage compensation (like, I hasten to add, capital compensation) is linked to productivity. The irony here is that, in your analysis, the problem with free trade is that it has reduced the ability of producers (both corporations and unions) to exploit consumers and the remedy you propose is to increase the powers of corporations to exploit those consumers (so that labour unions can share in those rents).

The irony here is that, in your analysis, the problem with free trade is that it has reduced the ability of producers (both corporations and unions) to exploit consumers and the remedy you propose is to increase the powers of corporations to exploit those consumers (so that labour unions can share in those rents).

But in the context where the end goal is worker ownership of the means of production, the consumers become the corporation. This strategy of permitting consumers to bargain prices down using foreign, labour/environmental/regulatorily relaxed jurisdictions or polities is the same as workers shooting themselves in the eye.

A look at US manufacturing should tell you that. Where did those workers (consumers) go? They didn't all go to Wall Street, let me tell you that!

Concern over corporate monopoly/oligopoly rents only exists when corporations have private owners. If corporations are in some sense run by and for the public, then it doesn't matter.

So no, it's not a fallacy if you don't see reducing prices to consumers as an untrammeled good, and if your goal is to preserve labour's share of the "rents" and ideally maximize it to 100%. Wal-Mart comes with steep social costs. It also comes with the instability we see today. And this is all traceable to a globalization that become disconnected from democracy. Which is the definition of free trade.

The larger point being, your answer makes sense if we conceive of the economy as containing the organizing concepts we use here and now, and your goal is simply to make it for a short time more livable. If your goal is to supplant this society by something else, and use democratic means to do so (as opposed to violent revolution which is where we are heading despite best efforts), then anything that shackles democratic oversight of the economy due to the short-term costs of backing out is a crime.

And that is what I meant by assuming the conclusion. Of course free trade has a positive effect for consumers. It's practically built into the starting assumptions of the model. It's not even an empirical question at that point. But Real Existing free trade is one of those things that has instead enabled certain actors to gain greater political control over the economy, and find ways to distribute productivity gains upward.

The global rich never lost a penny of those "rents" from free trade. It's been, in real existing reality, taken out of the hide of workers as part of a larger rollback of the gains of labour. Therefore, whatever tools economists are using to model the situation are missing something.

Here's a blog comment that says it much better than I can:

Another way to express Dorman's point #2 is that the methodological simplifications of mainstream economics (reducing interactions to material, market-oriented exchange) coincides with a particular political agenda, that of treating money-oriented market exchange as the key playing field for human interaction, and drawing normative conclusions about the winners and losers of that game.

This may be a coincidence or it may have identifiable causes, but either way it does show why economics as practised appears to many people to have a right-wing bias.


This fits Bob Smith's reply to me like a T. I mean, the metholodogical simplifications, forms of measurement/objective criteria, and so on of mainstream economics practically require that merits of free trade (and a bunch of other things) fall out trivially and analytically. It's practically tautological.

Economists may not intend this, as some kind of deliberate right-wing plot. I am not declaring there to be a conspiracy except for those who've taken obvious political money (and they exist).

My point, ultimately, is that if you want the left to pay attention to what economists have to say, you first have to show that your models can define the policies that actually match their goals. That requires understanding their goals, which require some ability to think utopianishly. It's a lesson that Stephen never seemed to learn even after all the time he spent at it before he started his own blog. And why should you care? Because in the medium term future, there's a non-trivial possibility that people like me (not me myself, obviously) will have much greater access to power in Canada than we do currently, as the political pendulum swings.

"The global rich never lost a penny of those "rents" from free trade"

Tell that to the shareholders (and bondholders) of GM and Chrysler.

"people like me...will have much greater access to power in Canada than we do currently, as the political pendulum swings."

With ideas like that, I won't hold my breath.

Tell that to the shareholders (and bondholders) of GM and Chrysler.

Anyone who was truly rich wasn't really affected by GM and Chrysler. They were hedged in various ways. There is not much churn in the fortunes of the top 0.1%. As amply noted, quite the contrary! Or did you miss the whole Occupy thing? The Eurocrisis (who is really getting bailed out here, and in what ways is labour getting hosed...)?

I mean, the fact that you think that GM and Chrysler shares and bonds lend any sort of support to your point suggests that, once again, you are coercing reality to fit an abstract tautology you believe is knowledge.

With ideas like that, I won't hold my breath.

Again, you don't know what you're talking about (and you accuse me...). Wasn't this thread about the NDP? Well, the NDP base, and not a little of the lefter part of the Liberal base, even, is even less willing to engage with economists than I am, and even less willing to listen to the free trade argument. I'm at least willing to listen, in particular when I know that *some* attempt is being made to understand the objection on its own terms (e.g., as I said, the recent monetary policy discussions). This group of people will not be out of power forever, particularly as the neoliberal gestalt fades into history, and while I'm under no illusion that they won't have to make compromises, the thinking I've described to you will still underlie their intentions.

"Well, the NDP base, and not a little of the lefter part of the Liberal base, even, is even less willing to engage with economists than I am, and even less willing to listen to the free trade argument."

Which, if true, only highlights the point that the NDP isn't a serious political party, or at least isn't serious about governing (and prefers ideological posturing to actually worrying about improving the common good).

Indeed the contrast between the federal NDP, on the one hand, and European socialist or social democratic parties (burdened with the responsibility of actually having to governs), or even their much more responsible provincial cousins in Saskatchewan, Manitoba (and increasingly Nova Scotia) suggests that the future of the NDP will either involve a maturing attitude towards the market and economic policy more generally, or a return to third party status in the house.

on the one hand, and European socialist or social democratic parties (burdened with the responsibility of actually having to governs),

Some of whom participated happily in leading their countries into what is increasingly recognized to be the Euro foolishness and have been discredited in their current forms, a British Labour party whose capitulation to neoliberal economics led to its dire situation, etc, etc, etc...

Like I said, we're coming to the end of this experiment in accepting economists' conclusions derived from odd assumptions and it's not looking good. Everything that the hard left said was wrong with the direction of the world has turned out to be correct. If we don't want to repeat this cycle, we have to try something new.

I think many especially on this blog need to differentiate between the Canadian context and the broader international context on many of these issues. I would argue even more strongly that one of Stephen Harper's greatest political sucesses has been to steal the flag of Canadian nationalism and appropiate for himself. This in my opinion leaves the left in Canada in a very torn position between international solidarity with Greek Strikers and Occupy Wall Street and their 1970s era support for Canadian nationalism(the left in Canada forgot under Trudeau that nationalism is always an inherently right wing force).

In Canada you also have the issue of a large traditional "male" "physical" workforce that is growing and doing quite well economically right now in the natural resources sector that provides a counterbalance to Harper and the conservatives against middle class aganst in places like the GTA.(Effectively the political status quo in Australia for example been sustained by the continued economic success of this group of workers) There was actually a very good article in the National Post today showing how the middle class squeeze in Canada is not just from above but also from below.

The second issue is that there has always been a divide between social democrats in Quebec and social democrats in the rest of Canada much as in the same way the left in UK and the left on the European continent have always been divided over support for the EU for example. Right now with a Quebec provincial election possibly just a year away the NDP has NO natural ally in Quebec provincial politics. The Liberals, PQ, and now the CaQ all for example strongly oppose any further increasing of federal spending in provincial jurisdictional areas and all in fact want decreases. It would seem hard to reconcile this with what a NDP goverment would want to do at the federal level.

"The Liberals, PQ, and now the CaQ all for example strongly oppose any further increasing of federal spending in provincial jurisdictional areas and all in fact want decreases. It would seem hard to reconcile this with what a NDP goverment would want to do at the federal level."

This is already an area where the NDP is hopelessly conflicted. I think the way they want to try to square the circle is with the notion of asymetric federalism (i.e., a strong centralized federal government, with an opt-out for Quebec). This was an easy policy to adopt when the NDP was safely ensconced in third place in Ottawa (and when NDP policies didn't attrac critical scrutiny if they were examined at all). In practice, the idea of providing an opt-out only for Quebec is likely to be politically unsellable in English Canada (and will make enemies of the provincial premiers), while the notion of providing opt-outs for all provinces undermines the NDP conception of a strong federal government (and, in any event, is likely to be an approach adopted by the federal Tories). The NDP is about to learn what the Mulroney Tories learned before them, winning Quebec can be a poisoned chalice if the price of doing so is making promises that can't be cashed in English Canada. The end result is winning neither Quebec nor English Canada.

"I would argue even more strongly that one of Stephen Harper's greatest political sucesses has been to steal the flag of Canadian nationalism and appropiate for himself. This in my opinion leaves the left in Canada in a very torn position between international solidarity with Greek Strikers and Occupy Wall Street and their 1970s era support for Canadian nationalism(the left in Canada forgot under Trudeau that nationalism is always an inherently right wing force)."

I think the distinction between the two forms of nationalism is that the Canadian nationalism of the 1970's was as much a function of left-wing anti-Americanism as it was Canadian "nationalism" (Jack Granastein has a book on that phenomenon). By virtue of our geography and history Canadians (and the Canadian left in particular) has a somewhat parochial world view which defines Canada by virtue of its difference from the US. Take the purportedly "Canadian" icon of medicare. There's nothing particularly Canadian about it, in fact we borrowed the idea from European social democracies (namely the Brits, about 20 years after the fact, and since then have ignored the evolution of the european models of public health care), except that the Americans don't have it. Therefore, it is, in left-wing eyes at least, a badge of true Canadian identity.

The evolution of a Canadian nationalism that is linked to Canada's history, rather than defined in opposition to the United States, is a positive development for Canadian politics.

Bob Smith:
I would disagree to a limited degree with "The end result is winning neither Quebec nor English Canada" I have always thought that if Charest had been leader of the PC's and siting Prime Minister in 1993 they would not have gone down to two seats(technically it should be considered three as Giles Bernier father of Maxime was reelected in the Beauce as an independent after being expelled by Campbell) and probably would have held 20+ seats in Quebec(a significant number of Bloc MP's would still have been elected). Outside of Quebec it would have been pretty bad still for the PC's especially in the West but at least they would have had a better base to build on for 1997 and perhaps a stronger hand for the PC side of the party in the eventual merger neogiations with Reform/Alliance.

As I such I am strongly of the belief from pure political calculus the best leader for the NDP right now is Tom Mulcair who I think could guarantee them at least 30 to 40 seats in Quebec which is much higher than what they have averaged over the years from the rest of Canada combined.(Mulcair as leader could cost them every seat OUTSIDE of Quebec but 40 seats is still 40 seats even if they are all in Quebec). I suspect though the NDP membership in RoC has no of intention giving Mulcair the leadership just as realistically it would have been tough for Charest to beat out Campbell in 93 among PC members(though there was movement to Charest away from Campbell toward the very end of the leadership campaign). As such when the "blank" hits the fan for the NDP as it did for the PC's back in early 1990s they will be in position as you suggested of losing both Quebec and English Canada. I also note that many of the NDP leadership candidates appear to have a level of French speaking skills similar to those of Kim Campbell.

Like there's no enormous right-wing elephant south of the border that threatens local control over practically everything (energy, water, security...)

Going back to free trade, I'd be willing to sign on if it were practical to create an international elected parliament with "teeth". Oh, you're saying, it's not?

Well, gosh, someone should have told Europe that. What's astonishing is that Europe has pretty much internationalized everything but real representative democracy, and yet Eurozone failure is underway. That's because it's a natural consequence of coupling economic relations from political oversight. But most newspaper and bloggy economists are focused on either Eurozone monetary policy, or, a (better) minority, exhorting Europe to form a pushme-pullyou fiscal union with little thought as to how that may look...

"de-coupling". Gack.

The comments to this entry are closed.

Search this site

  • Google

    WWW
    worthwhile.typepad.com
Blog powered by Typepad