Worthwhile Canadian Initiative

Who Gets What Federalism

The recent Mowat Centre report on Ontario’s fiscal gap with Ottawa and the lament that Ontario puts more into Confederation than it gets out brought to mind a poll done in 2005 by EKOS that showed that 51 percent of Canadians believed their province was putting more money into Confederation than it gets out. Of course, the proportion varied by province with 70 percent of Albertans feeling this way, 55 percent of Ontarians, 45 percent of Atlantic Canadians and 44 percent of Quebecers.  According to Frank Graves, the President of Ekos:  “Such a pervasive sense of being short-changed does not augur well for the health of federalism”.

What does the federal budget mean for the post-secondary sector?

Reforming universities is difficult. Cures tried elsewhere, like the UK Research Assessment Exercise, have induced people to publish more. Yet, to the extent that research comes at the cost of time spent teaching or engaging with students, "incentivizing" research could actually decrease the social value of universities.  

University reform is doubly difficult in Canada, where universities are a provincial responsibility, and coordinated action is problematic. I suspect that Prime Minister Stephen Harper would like to pull a Margaret Thatcher, and end tenure, or whip academics into shape with frequent assessments. But the federal government has no jurisdiction to act in this area.

Hence the government is pursuing a multi-level strategy.

Son Spots: The merits of dynasties

Politics seems to run in families. The question is: why? Why would electors choose the son, daughter or spouse of a successful politician over other candidates who are, on paper at least, equally or more qualified? 

An economist is in no position to answer this question, but is ably equipped to theorize about it.

Game of Premiers: The Premiers, Health & Public Policy

Well, Canada’s premiers and territorial leaders are gathering in Halifax this week engaged in their version of the Game of Thrones with hurt feelings and fiscal uncertainty rather than beheadings, swordplay and pillaging the most likely dire consequences. Among the issues planned for discussion are energy and health care. Not on the official agenda will be the fact that a number of provincial elections loom. Health care is expected to be at the front of the agenda at the summit in Halifax this week but it may surprise even the premiers to learn that after adjusting for inflation and population, growth rates of real per capita public health spending in Canada have recently declined. Data from the Canadian Institute for Health Information shows over the period 2000 to 2011, real per capita public health spending grew at an average annual rate of 2.8 percent. However, recent annual growth rates have declined – from 3.6 percent in 2008, to 2.3 percent on 2009, and to estimates of 1.9 and – 0.7 percent in 2010 and 2011 respectively.

Information and Empire

The case of the Parliamentary Budget Officer again locking horns with the federal government because of a request for information is symptomatic of a broader problem.  The PBO is giving the government until the fall to release additional details of planned budget cuts or will take them to court.   Naturally, in Ottawa’s current budgetary siege mentality, the reluctance of a majority of government departments/organizations to provide information (apparently only 18 out of 82 have complied) in response to a request by the PBO is bureaucratic self-interest.  After all, any criticism of the government is viewed as an attack and the source of the information itself can become a retaliatory target.  In an era of budget cuts, civil servants are becoming super cautious.

Competition between unions

Suppose you were a believer in the benefits of canoes. You want as many Canadians as possible to own a canoe. You would presumably want to encourage competition between different canoe manufacturers, so they would compete on price and quality, so that price would be lower and/or quality would be higher, so that more Canadians would want to own a canoe.

Suppose you were a believer in the benefits of unions. You want as many Canadians as possible to belong to a union. You would presumably want to encourage competition between different unions, so they would compete on price and quality [update, to make the analogy clear: of the services unions provide to their members], so that price would be lower and/or quality would be higher, so that more Canadians would want to belong to a union.

The Big Secret: Banks are banks

I have a confession to make. During the financial crisis I secretly bailed out the Bank of Montreal. I was part of a vast conspiracy of millions of other Canadians doing the same thing. It's worse. My personal bailout program for the Bank of Montreal started long before the financial crisis. It started when I first arrived in Canada. It's even worser. The Bank of Montreal still has not repaid me what it owes, and my bailout continues to this day. Without this bailout program, the Bank of Montreal could never have continued in business; it would have gone bust centuries ago. This secret bailout program is far bigger than the total market value of Bank of Montreal shares, so the Bank of Montreal is deeply underwater! It would have been much cheaper for me and my fellow conspirators to have bought the Bank of Montreal outright. And we could have earned a far higher return on our investment if we had done that. The Bank of Montreal eagerly borrowed every single dollar we were prepared to lend it in our bailout program, and made a profit by lending those dollars to other borrowers. We should have just lent our dollars directly to those ultimate borrowers, and cut out the middleman.

Or, to say the same thing more simply: I have a chequing account at the Bank of Montreal, and the Bank of Montreal is a bank.

Fiscal policy, ideology, and framing

TiC

Take a standard New Keynesian macro model. Assume it sometimes gets stuck in a ZLB liquidity trap, where monetary policy can't work.

There is a very simple solution: use fiscal policy.

Government spending should be cut whenever the economy is not in a liquidity trap. That is the clear policy implication of New Keynesian macroeconomic models.

I am very pleased to see that Canada's Conservative government is currently following that New Keynesian policy recommendation, and is cutting government spending now that the Canadian economy is no longer at the ZLB. All New Keynesians will applaud this sensible policy. Any opposition to this use of fiscal policy must be ideological.

/TiC

Is a Constitutional Challenge Public Health Care's Next Arena?

Many Canadians believe that the Canada Health Act is the bulwark that is supposed to be protecting public health care and that it should ensure comparable levels of coverage across the country.  Yet, if one examines per capita provincial government health spending, the evidence shows that there are major differences.

Anke Kessler on the effects of robocalls on voter turnout

One of the (many!) important questions raised by the robocall scandal is whether or not the deceptive calls did in fact achieve their presumed goal of inducing supporters of opposition parties to stay home and not vote.

If you look at riding-level data, there's not much to see. But Simon Fraser University's Anke Kessler has dug deeper into Elections Canada's poll-level databaseand uses information that is available at the poll level.  Outcomes at polling stations differ in turnout and in vote shares for particular candidates; this makes each riding look like a smaller copy of a country-wide election. In a first step, she finds that polling stations with predominantly non-Conservative voters generally experienced a decline in voter turnout from 2008 to 2011. In a second step, she asks how the extent of this decline varies with reported robocalls. She finds that it was larger in the former, meaning that in ridings where robocalling was reported, polling stations that voted predomininantly non-Conservative in the 2008 election saw a greater-then-average decline in voter turnout. The paper "Does misinformation demobilize the electorate? Measuring the impact of alleged 'robocalls' in the 2011 Canadian election" is available here.

If I had a policy tardis...

Imagine it was possible to travel back in time, and tell the policy makers of the past everything that we now know about pay as you go pension (PAYG) plans. Life expectancies will increase, birth rates will fall, and the contributions required to sustain the schemes will grow. PAYG pensions will be blamed for discouraging savings, and dampening economic growth. 

Imagine it was possible to go back to 1951, when Canada's Old Age Security programme was introduced. Could Louis St Laurent be persuaded to introduce a fully funded pension plan instead?

Raising the pension age: not if, but when.

It is not a question of if: Canada will, eventually, raise the age at which people are entitled to claim Guaranteed Income Supplement and Old Age Security. The US is raising its full retirement age, the UK is raising its state pension age.

We'll raise our pension age for the same reason that they raised theirs: it saves money, and it has little political cost.

Think about it: if Stephen Harper was to announce tomorrow that the age at which people will be entitled to claim Old Age Security was going to increase to 67 in the year 2025, who would protest?

The politics of NGDPLP targeting, redux

Back in November 2011, there was a part of the world that I didn't understand. The politics of monetary policy didn't make sense to me. Now the world is starting to make more sense. It's not that my understanding has changed. It's the world that has begun to change.

Specifically, John Quiggin has come out in favour (HT Marcus Nunes) of Nominal Gross Domestic Product Level Path Targeting. And John Quiggin is a lefty. That helps resolve my puzzle back in November 2011. I didn't understand: "Why isn't NGDP targeting a lefty thing?". Now that NGDPLPT is becoming a lefty thing, the world is starting to make sense to me again. I think it's only a matter of time before Canadian lefties join this Australian lefty. (We don't pay enough attention to Australia, because it's so far away, but Australia is just like Canada except it's hotter and nobody speaks French.)

No, we really don't want to reduce inequality

A few weeks ago, Mike Moffatt wrote an op-ed that ran in the Ottawa Citizen and several other PostMedia papers to the effect that there simply isn't the will on the part of 99% of the population to do much about inequality: if there were, there'd be more popular support for the sort of tax-and-redistribution measures that would actually be effective in reducing inequality. Instead, we get stuff like this:

Appeasing anti-tax sentiment

Alex Himelfarb has an opinion piece in today's Globe and Mail on the 'anti-tax' sentiment that has grown to play such a dominant role in Canadian politics. Although I agree with his diagnosis, his prescriptions are not so much a plan for countering anti-tax sentiment as they are a symptom of its hold on public discourse.

A Lament for Public Policy

In New Directions for Intelligent Government in Canada: Papers in Honour of Ian Stewart, Don Drummond reflects on the state of public policy analysis in Canada and whether the rigour of policy analysis that existed in the past still exists today though he wisely cautions that “tales of the good old days are often the product of bad memories.”   He comments particularly on the state of economic public policy analysis at the various sources: the local, provincial, and federal government levels as well as universities, think tanks, the private sector and the media and composes what could be termed a Canadian lament for economic public policy analysis. 

Transfer Dependency's New Friends

Well, I decided to finish off my postings on provincial revenues and go to the Federal Fiscal Reference Tables which provide a federal transfer revenue variable for each province from 1987/87 to 2009/10 as well as provincial revenues.  I have a plot of nominal per capita transfer revenues and not surprisingly it shows an upward trend.  More importantly, I then construct a share of provincial revenue accounted for by federal transfers. 

A 90% Subsidy to Political Riding Associations?

While the per-vote subsidy is being phased out, it is only one of four subsidies given to political parties, with the other 3 being as follows:

• A tax rebate to persons making a political donation, including a 75% rebate to those donating $400 or less (Sec. 127(3) of the Income Tax Act)
• A 50% spending rebate to parties that receive 2% of the popular vote or 5% of the vote in ridings they contest (Sec. 435 of the Elections Act)
• A 60% spending rebate to candidates/riding associations that receive 10% or more of the vote (Sec. 464 of the Elections Act)

While the spending rebates, particularly the ones to individual candidates, have been criticized on fairness grounds, they are also problematic as they amplify or compound the per-vote subsidy and the income tax rebate.

The 2011 election and Somebody Else's Problem

In Life, the Universe and Everything, Douglas Adams posited the existence of 'SEPs':

An SEP is something we can't see, or don't see, or our brain doesn't let us see, because we think that it's somebody else's problem.... The brain just edits it out, it's like a blind spot. If you look at it directly you won't see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye.

The technology involved in making something properly invisible is so mind-bogglingly complex that 999,999,999 times out of a billion it's simpler just to take the thing away and do without it....... The "Somebody Else's Problem field" is much simpler, more effective, and "can be run for over a hundred years on a single torch battery."

This is because it relies on people's natural predisposition not to see anything they don't want to, weren't expecting, or can't explain.

The Liberal dilemma: centrist or centralist?

The Encyclopedia Britannica defines Canada's Liberal party as centrist.

If this is true, then their collapse can be explained by a splintering of the electorate, so fewer Canadians identify with the centre, or by an increase in political competition. Now other parties, such as the Greens, compete for the centrist vote.

While both these stories may contain elements of truth, let me propose an alternative explanation: Canada's Liberal party is a centralist party, and centralism doesn't work in a heterogeneous society.