The recent policy debate over whether its time for interest
rates to start to rise after being at the lowest levels since the Great
Depression for nearly five years shows just how much of a policy box
governments are in when it comes to fiscal and monetary policy. Never mind the debate over whether there is a trade-off between monetary stimulus and financial stability. Raising rates to reduce the perverse
incentives on long-run economic behavior and activity comes with the risk of destabilizing
public finances by raising debt service costs.
The Rhine River is the heart of significant economic
activity as a European transport and commercial corridor.Running 1,233 km from the Alps to the North
Sea, its rich economic hinterland generates commercial traffic, which made it
attractive as a source of revenue for regional lords and masters for
centuries.Hence, the numerous castles,
which were built at key points to defend the trade route and help extract
tolls.By way of comparison, our much
longer Great-Lakes St. Lawrence Seaway (3700 km) never developed the fractured
payment system – as well as the numerous political entities - that
characterized the Rhine.The upper
middle route from Strasbourg to Koblenz is lined with picturesque castles and
towns – and industrial activity – such as the massive BASF complex in Mannheim.
I had a bit of an intellectual crisis this evening as I
pondered the conventional wisdom in economics regarding the choice between
reducing consumption taxes or income taxes.Briefly put, the simple conventional wisdom is that taxes on
consumption are preferred to income taxes because they encourage saving and
long-term capital formation and economic growth.Income taxes, on the other hand, distort the labour-leisure
choice and can reduce labour supply and therefore reduce economic growth.
As you probably all know, the Reinhart-Rogoff 2010 study found economic growth slows
when the debt to GDP ratio exceeds 90 percent.They used data for 44 countries over a 200-year period and
found the relationship between debt and real GDP growth was weak for debt to GDP
ratios below 90 percent.However,
above 90 percent, economic growth dropped considerably more.Thomas Herndon, an economics graduate
student at the University of Massachusetts-Amherst, has challenged this
result.Using the Reinhart-Rogoff
Data data, he found that economic growth slows but not as dramatically as the
Reinhart-Rogoff result. Well, the
recent debate over the relationship between debt and economic growth has
spurred me to do my own quick analysis.
The latest release on the value of building permits for Canada's CMAs by Statistics Canada provides an interesting perspective on a slowing economy. The numbers show that there has been a downward trend in the total value of permits since late 2012.
CBC’s Fifth Estate has put together a ranking of Canadian
hospitals and the results are out.They provide a new online tool that grades hospitals on key performance
indicators reported by hospitals and justify it as a call for more accountability
and transparency in the Canadian health care system.Given the inevitable complexity of ranking hospitals with
differences in provincial health status and population characteristics, the
fact that they only are able to rank 239 out of 600 plus hospitals, and the
reluctance of most provinces and territories to provide some of the requested
information, it is a limited picture.Yet, it is information that will be used.
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”.
The Mowat Centre has issued a new report on Ontario’s fiscal balance
within the Federation called "Filling the Gap: Measuring Ontario's Balance within the Federation." The report finds that: “based on the latest available figures, Ontarians transfer
approximately $11B on net to the rest of Canada. This transfer is equivalent to
1.9% of the province’s GDP. This can be referred to as the gap between what
Ontarians contribute to the federal government and what is returned to the
province in the form of transfers and spending. This gap exists despite the
fact that Ontario’s fiscal capacity is below the Canadian average.” This report is the latest installment
in an effort by Ontario
to redress the fiscal balance.
That the size of the fiscal gap is almost identical to the current size
of Ontario’s deficit is a convenient juxtaposition.
Budgets are political and aspirational documents as they lay
out a future course for the economy and government revenues and expenditures much
as the government of the day would like them to be. Well, the 2013 federal budget is no exception
as a bit of additional study of the budget numbers suggests that balancing the
budget by 2015-16 and generating surpluses thereafter is probably wishful
thinking.
Statistics Canada has released its most recent report on
police personnel and expenditures and notes that police strength measured as
officers per capita declined in 2012 by 1 percent. Moreover, there has been a slight decline in police
expenditures overall with spending in 2011 totaling 12.9 billion – a decline of
0.7 percent from the previous year.
However, spending and officers per capita have generally grown over the
last decade and police forces and police spending are higher than they used to
be. What is of more interest to me are
the numbers at the CMA level and their relationship with crime rates.
What a difference just a few months can make in the world of
federal government finance.
Apparently, weak commodity prices and a slowing economy are playing such
havoc with government finances that Thursday’s federal budget will show a
downward revision of economic growth forecasts as well as a shortfall in
revenue that will be addressed by extra savings that will come from limiting
the growth of federal discretionary spending – direct spending on programs and
services as opposed to transfers.
With the Conclave of Cardinals about to convene to choose a
successor to Benedict XVI, it is worth taking a look at some statistics
regarding the line of popes over the course of 2000 years. Based on the list in the Catholic
Encyclopedia, Benedict XVI was the
267th pope in a line stretching back to Peter and his eight year
reign was actually slightly above the average tenure for all popes but below
average for those who have served more recently. Indeed, the reign of popes probably provides an
interesting long-term perspective on longevity and the standard of living given
that since popes usually served until death, the length of reign is likely
correlated with longevity.
I’ve been doing some data exploration on public sector
spending and societal outcomes and have some preliminary results that have
caused me to puzzle about what they might mean. I’ve been looking at annual data for OECD countries (33
countries) over the period 2000 to 2010 and the relationship between public
sector size and crime rates.
Public sector size is defined as total government expenditure as a share
of GDP. The crime variables were
the number of homicides per 100,000 of population and the number of burglaries
per 100,000 of population. The
data is from the OECD and is essentially unbalanced panel data. The results for homicides did not
surprise me but that for burglaries did.
Alex Usher of Higher Education Strategy Associates asked
some interesting questions in his morning blog post. The world of university funding in Canada is changing –
there is more money overall for universities but governments have been paying a
declining share of university operating budgets with the remainder coming from
tuition and assorted sources of research and contract funding. Indeed, a lot of new government money is targeted towards
capital projects or new student support programs rather funding what faculty
often see as core teaching and research functions of universities.
Well,
Ontario has a new finance minister – Charles Sousa – and according to the
Toronto Star: “Charles Sousa, the
two-term Mississauga South MPP who finished fifth in last month’s leadership
race, will succeed the retiring Finance Minister Dwight Duncan at the treasury.
An affable former Royal Bank executive, Sousa inherits a $11.9-billion deficit
that the minority Liberals hope to eliminate by 2017-18.” As far as inheritances go, I suppose I
would prefer to be on the receiving end of a few thousand acres of rolling
English countryside and Downton Abby rather than an 11.9 billion dollar
deficit. No doubt, the new
minister has been briefed on what is coming down the pipeline. The most recent Ontario quarterly
finance update provides a lot for him to chew on.
Robert Gordon has argued in his recent NBER paper “Is U.S.
Economic Growth Over? Faltering Innovation Confronts the Six Headwinds” that
growth rates have slowed and we are reverting to very low historical growth
rates and indeed a period of economic stagnation. However, what I find intriguing is that an examination of
some long-term data for Britain provides conflicting results that quite frankly puzzle me.
In my morning newspaper, I came across a hardware
store flyer advertising a great new innovation – toilet with pump! Essentially, along with your regular toilet,
an additional water storage tank and pump is installed that allows you to store recycled water
used from your sink, tub, or shower and then use it when you flush.
The motto that graces our national coat
of arms is well known to Canadians but what is less well known is just how succinctly
it encapsulates the economic vision of nineteenth Canadian business elites and
the Fathers of Confederation, as well as summarizes the subsequent economic development of
Canada in the half-century after Confederation.
Andrew Coyne has an excellent piece in the National Post
dealing with why there are no good reasons for corporate handouts in the wake
of yet another round of assistance to the automobile sector. He asks what the economic rationale for this assistance is – that is, what is the economic value? He argues that what passes for economic
arguments in support of corporate assistance and bailouts really are but
“pseudo-arguments”. For example,
we must subsidize the auto industry because we must be in the automobile
business – in essence, the auto industry is special. Or, other countries are assisting their manufacturing
sectors with subsidies so we need to do so to compete.
The last few weeks has seen the death of two economists –
James Buchanan and Albert O. Hirschman - whose work has influenced my intellectual development and thinking over the years. Their thoughts combined with tomorrow’s “political action” by
Ontario teachers against the soon to expire McGuinty government has caused me
to think about what forces are at work here. To be human is to see patterns (I can’t remember who
came up with that line but I’m sure it was not me) and the dispute with Ontario
teachers can certainly be framed in my mind by the concepts of Leviathan, exit
and voice.
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