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  • Kate McInturff Fellowship in Gender Justice September 19, 2018
    The CCPA is pleased to announce the creation of the Kate McInturff Fellowship in Gender Justice.This Fellowship is created to honour the legacy of senior researcher Kate McInturff who passed away in July 2018. Kate was a feminist trailblazer in public policy and gender-based research and achieved national acclaim for researching, writing, and producing CCPA’s […]
    Canadian Centre for Policy Alternatives
  • The buck-a-beer challenge Ontario deserves September 6, 2018
    Ricardo Tranjan proposes an alternate plan to Doug Ford's buck-a-beer challenge in the Toronto Star.
    Canadian Centre for Policy Alternatives
  • Growing number of professionals face job insecurity, study finds September 6, 2018
    The Toronto Star's Sara Mojtehedzadeh discusses the findings of the CCPA Ontario's report, No Safe Harbour and gathers firsthand accounts from precariously employed professionals who live and work in Ontario.
    Canadian Centre for Policy Alternatives
  • Our Schools/Our Selves: The view from West Virginia September 4, 2018
    Our latests publication, Lesson Here, digs in to the West Viriginia teachers' strike.  Read the firsthand accounts of the work stoppage here.
    Canadian Centre for Policy Alternatives
  • What do the two largest mining disasters in Canada's and Brazil's history have in common? August 20, 2018
    Tailings dam spills at Mount Polley and Mariana: Chronicles of disasters foretold  explores the many parallels between the tailings dam spills at the Mount Polley mine in British Columbia, Canada, and the Samarco mine in Mariana, Minas Gerais, Brazil. The Mount Polley disaster took place in August 2014, when the dam holding toxic waste from […]
    Canadian Centre for Policy Alternatives
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Teaching macroeconomics as though Lehmans didn’t happen

September 15th marked the tenth anniversary of the fall of Lehman Brothers, destabilizing Western economies at levels not seen since the 1930s. It also marked the second week of fall classes, with many economics graduate students cranking through equations that define the discipline’s conventional macroeconomic models. With such names as New Classical, Real Business Cycle and New Keynesian, these models can all be traced to the rational expectations revolution of the 1970s, which sought to explain stagflation when the conventional Keynesian framework could not. The rational expectations approach attempted to provide more precise behavioral microfoundations than the Keynesian model by positing that economic actors can form expectations of future economic values, say inflation, such that on average, their predictions of future values tend to be correct. This assumes the actors share the same understanding of the structure of the economy and past economic data. This research program would come to dominate macroeconomic scholarship and strongly influence policy makers, culminating in the creation of the dynamic stochastic general equilibrium (DSGE) model, a popular forecasting and policy analysis tool used in central banks and finance departments.

This approach to macroeconomic modeling came under scrutiny following the 2008 crisis, with Nobel laureate Paul Krugman asserting that most of the macroeconomics over the past 30 years was “spectacularly useless at best, and positively harmful at worst”. While this did spark some soul-searching within the discipline, the debate has been inconclusive. Several policy-making bodies are taking seriously the limitations of 1970s macroeconomics. In its recent Medium-term Research Plan, the Bank of Canada recognises that the crisis has challenged its reliance on New Keynesian DSGE models, encouraging the exploration of alternative modeling paradigms, such as agent-based and stock-flow consistent models.

On Canadian campuses, however, where the next generation of macroeconomists are being trained, there is no clear signal that similar changes are being made in the curriculum of grad-level macroeconomics. A recent panel discussion among academic economists featured the admission that the 2008 crisis was the most embarrassing empirical failure of the profession since the Great Inflation of the 1970. Yet, in the same breath, that professor said he wouldn’t change a thing in his teaching. Indeed, a glance at the macroeconomics syllabuses of several top Canadian grad schools find little evidence of a shift away from teaching the rational expectations-grounded macro models that have come under criticism.

Professors tend to teach what they are taught. With the sunk cost of prepping for PhD macroeconomic comprehensive exams, they have little incentive to develop a new course involving subject matter in which they are not trained. Further reinforcing the status quo is the tendency to teach what you research. Working in a climate of publish or perish, macroeconomic profs have good reason to not deviate from the dominant research agenda, which remains wedded to 1970s macro. In the absence of strong leadership for change or a mandate from either the dean or the premier to sit down with one another and re-design the curriculum, teaching macro in the post-crisis era will continue to be business as usual.

Yet this is not in the public interest. Given the acute financial stress experienced ten years ago, we have a stake in knowing that the policy makers of tomorrow are well prepared to confront episodes of economic downturn and instability. Learning to use a larger modeling toolbox is part of such preparation.

So, what are Canada’s economics students to do in the meantime as they are grind through the math describing a DSGE model? As befitting any college course where critical thinking is one of the learning outcomes, here are some questions students may ask about the models they are taught:

1. Who is in the model? The basic models tend to have a single agent representing all consumers who are assumed to be sufficiently alike as autonomous rational optimizers sharing common knowledge. Can the model accommodate multiple actors who may differ by age, preference, belief, resources and class?

2. Is there room for “black swans”? The 2008 crisis was precipitated by the collapse of the U.S. subprime mortgage market, an event deemed of low risk but of high impact. How does the model address this and other examples of fundamental uncertainty?

3. What kind of markets are modelled? Models with perfect competition behave very differently from more realistic models with imperfect competition, information asymmetries, price rigidities and institutional constraints.

4. Is there a financial sector? Perhaps the strongest criticism of the 1970s macro models was the reduction of complex financial plumbing to a single interest rate variable. Can these models feature lenders and borrowers? Are there banks? How does money fit in?

5. Does the model have to move to equilibrium? Following an economic shock, standard models tend to instantaneously jump to a new equilibrium path. However, observations of macroeconomic variables as they unfold over time suggest that such adjustment may be a much slower, sequential process. Understanding this path of adjustment may be of greater importance than the equilibrium destination.

6. How are these models empirically tested? A model’s usefulness should be judged by how it explains actual economic history.

With these and other critical questions about the core macro teaching models, tomorrow’s dismal scientists should be better prepared to confront challenging economics times.

CLC Senior Economist Job Opening

There’s an exceptional opportunity for a bright and critical-minded economist who is as passionate about social justice and working on behalf of unions and working people as they are about working with spreadsheets: CLC Senior Economist.

Application deadline September 21st.   More details and job posting here.

Call for federal support of cancelled Ontario basic income project

Members of the Progressive Economists Forum noted with dismay the premature cancellation of Ontario’s basic income pilot and have penned an open letter to Federal Minister Jean-Yves Duclos (Families, Children and Social Development) calling for federal support for the project. So far, the letter has been signed by 50 Canadian economists and researchers.

_____

Dear Minister Duclos:

As economists and researchers, we noted with dismay the premature cancellation of Ontario’s Basic Income Pilot. The announced cancellation before the first anniversary of full enrollment ensures that no useful data can have been collected to date, and none will now be collected. This deprives not only Ontario but also the rest of Canada of valuable evidence that might have influenced policy. Ontario was one of several Basic Income experiments worldwide that, together, would have allowed international comparisons and rational policy development.

We, the undersigned economists and researchers, are writing to ask you to use the resources and authority of your office to salvage what you can of the Ontario Basic Income Pilot for the benefit of all Canadians and, especially, to ensure that the 4,000 vulnerable participants who agreed in good faith to participate in Ontario’s experiment are treated in a just and humane manner.

Closing the experiment with no announcement of how participants will be transitioned out of the program is unethical. Participants used the money they received from participation in the experiment and relied upon the promises that were made by the Ontario government to make long-term plans to better their lives. They leased apartments, registered in postsecondary education and borrowed money to invest in the future wellbeing of their families. As a result of the cancellation, they are likely to be worse off now than before they agreed to open their lives to researchers. This is unconscionable and must not be allowed to happen.

Thank you for your consideration.

Sincerely,

1. Abdella Abdou, Associate Professor, Department of Economics, Brandon University

2. Roy J. Adams, Professor Emeritus, DeGroote School of Business, McMaster University and Ariel Sallows Chair of Human Rights, Emeritus, College of Law, University of Saskatchewan

3. John Allett, Professor Emeritus, Department of Social Science, York University

4. Sheila Block, Senior Economist, Canadian Centre for Policy Alternatives – Ontario

5. Jordan Brennan, Economist, Unifor

6. Jerry Buckland, Professor, Menno Simons College, University of Manitoba

7. Mary Anne Coffey, Contract Faculty, Department of Social Science, York University

8. Anupam Das, Associate Professor, Economics, Department of Economics, Justice, and Policy Studies, Mount Royal University

9. Megan J. Davis, Associate Professor, Department of Social Science, York University

10. Robert W. Dimand, Professor, Department of Economics, Brock University

11. Susan Dimock, Professor, Department of Philosophy, York University

12. Lynne Fernandez, Errol Black Chair in Labour Issues, Canadian Centre for Policy Alternatives – Manitoba

13. Ernest Epp, Professor Emeritus, Department of History, Lakehead University

14. Evelyn Forget, Professor, Department of Community Health Sciences, University of Manitoba and Academic Director of the Manitoba Research Data Centre

15. Marjorie Griffin Cohen, Professor Emerita, Department of Political Science and Department of Gender, Sexuality, and Women’s Studies, Simon Fraser University

16. Ricardo Grinspun, Associate Professor, Department of Economics, York University

17. Trevor Harrison, Professor, Department of Sociology, University of Lethbridge

18. Alex Hemingway, Economist and Public Finance Policy Analyst, Canadian Centre for Policy Alternatives – British Columbia

19. Trish Hennessy, Director, Canadian Centre for Policy Alternatives – Ontario

20. Rod Hill, Professor of Economics, Faculty of Business, University of New Brunswick, Saint John

21. Ian Hudson, Professor, Department of Economics, University of Manitoba

22. Iglika Ivanova, Chair, Progressive Economics Forum and Senior Economist, Canadian Centre for Policy Alternatives – British Columbia

23. Mustapha Ibn Boamah, Associate Professor of Economics, Faculty of Business, University of New Brunswick, Saint John

24. Thaddeus Hwong, Associate Professor, School of Public Policy and Administration, York University

25. Andrew Jackson, Adjunct Research Professor, Institute of Political Economy, Carleton University

26. Peggy Keall, Assistant Professor, Department of Social Science, York University

27. Kamala Kempadoo, Professor, Department of Social Science, York University

28. Gerda Kits, Associate Professor of Economics, The King’s University

29. Seth Klein, Director, Canadian Centre for Policy Alternatives – British Columbia

30. Tuulia Law, Sessional Assistant Professor, Department of Social Science, York University

31. Marc Lee, Senior Economist, Canadian Centre for Policy Alternatives – British Columbia

32. Martha MacDonald, Professor of Economics, Sobey School of Business, Saint Mary’s University

33. Hugh Mackenzie, Consulting Economist and Principal, Hugh Mackenzie & Associates

34. Fiona MacPhail, Professor and Chair, Department of Economics, University of Northern British Columbia

35. Joan McFarland, Professor, Department of Economics, St. Thomas University

36. Merouan Mekouar, Assistant Professor, Department of Social Science, York University

37. Eric Miller, Contract Faculty, York University

38. Rob Moir, Associate Professor of Economics, Associate Dean (Research & Special Projects), Acting Dean, Faculty of Business, University of New Brunswick, Saint John

39. Linda Peake, Professor, Director of The City Institute, York University

40. Ellie Perkins, Professor, Faculty of Environmental Studies, York University

41. David Pringle, Progressive Economics Forum

42. Lars Osberg, Professor, Department of Economics, Dalhousie University

43. Mario Seccareccia, Professor Emeritus, Department of Economics, University of Ottawa

44. Brenda Spotton Visano, Professor, Economics and School of Public Policy and Administration, York University

45. Jim Stanford, Harold Innis Industry Professor of Economics, McMaster University

46. John Stapleton, Social Policy Expert, Open Policy Ontario

47. Almos Tassonyi, Executive Fellow, School of Public Policy, University of Calgary

48. Mel Watkins, Professor Emeritus, Department of Economics, University of Toronto

49. Barry Watson, Associate Professor of Economics, Faculty of Business, University of New Brunswick, Saint John

50. Vicki Zhang, Assistant Professor, Department of Statistical Sciences, University of Toronto

Cc: Hon. Lisa MacLeod, Ontario Minister of Community and Social Services

When tenants ‘graduate’ from Housing First programs

Over at the Research Blog of the Calgary Homeless Foundation, I’ve written a ‘top 10’ overview of a study on which I’m co-author. It essentially asks the question: “When homeless people are placed into subsidized housing with social work support, for how many months/years do they require that social work support?”

The study relies on an impressive data set about ex-homeless people who’ve been placed into subsidized housing with social work support in Calgary. Methodologically, the study uses survival analysis and hazard models.

The blog post can be accessed here.

Rotstein’s Monumental Epitaph

The late Abraham/Abe Rotstein (1929-2015) was an economist of a leftist persuasion, literally a Left Liberal. He left behind an almost completed manuscript which he had been working on for more than three decades. It has now been published.  Its title Myth, Mind and Religion: The Apocalyptic Narrative is indicative of its extraordinary breadth.

Problems, possibilities, catastrophes, which compel resolution present themselves in an apocalyptic manner: oppressor/victim, inversion of victims into masters, and a salvation regime as the outcome.  There are chapters on Jesus, Luther, Hegel, Marx, Hitler, etc.  For example, Marx, in a manner familiar to economists: capital oppresses labour, the proletariat as victim overthrows the capitalists, there is heaven a.k.a. communism on earth.

Rotstein chose to go far beyond his own discipline of economics – which is a tribute to his intellectual courage – but he is not without relevance to our present day concerns about matters economic and beyond in these turbulent, perhaps apocalyptic, times.

On contemporary matters,  Rotstein reminds us of, in his words, the Radical Decade from the mid-1960s to the mid-1970s. The cry was for liberation – by black people and indigenous people from racism and for civil rights, students, colonies and dependencies from the imperium, women, gays – and for respect for the environment, for Nature, from the assaults of capital in particular. Radicalism proved ephemeral but the demands have not ceased.

Rotstein was writing before Trump and the rise of the alt-right, but, as noted, he does deal with Nazi fascism, of the perverse claim that the populace was oppressed by the Jews, the Other of the times, and must be annihilated. Today it is immigrants and refugees who constitute the Other and who must therefore be oppressed in the name of white supremacy.

Rotstein sees out-of-control technology as the apparent menace of  our times – think today’s carbon emissions and climate change, the attacks on privacy and democracy by digital media, job destruction from artificial intelligence, “the robotization of life.” The victims are the many but what or who are the oppressors and what is to be done.

Rotstein is no longer with us to discuss these matters.  His legacy is to warn us of the dangers of apocalyptic thinking, a mode of thought that he sees as characterizing the Judaeo-Christian West for three millennia.

 

Ontario Electricity Sector VI – Meet the new boss…

The provincial election of June ended 15 years of Liberal electricity policy in Ontario. Anger over high electricity prices continued to be an election issue, contributing to the Liberal loss of power and official party status (reduced from 55 to 7 seats). The PCs have formed Government with 76 seats, while the NDP is official opposition with 40 seats, and the Green Party won their first seat.

The PC Government has moved quickly to act on some of their election promises and other unannounced initiatives, including on the electricity file, convening an exceptional summer session of the Legislature. The new Minister of Energy, Greg Rickford, cancelled 756 renewable energy contracts via Ministerial Directive in early July. Later in the month the Government rushed an omnibus Act through the Legislature (time-allocated debate, no Committee review, no public hearings, no opportunity for amendments) that changed the governance of Hydro One and canceled the White Pines wind power contract in Milford. Here I will first review the Government’s options with respect to the Liberal’s “Fair Hydro Plan” (FHP) before I discuss these cancellations.

Read more »

Was Innis Wrong?

The question is taken from the title of an article by Nancy Olewiler of Simon Fraser University in the Canadian Journal of Economics (November 2017), which, as it happens, was delivered as the Innis Lecture at the meetings of the Canadian Economics Association in 2017: “Canada’s dependence on natural capital wealth: Was Innis wrong?”  Her answer: she writes “Literature and recent debate reject his prediction that Canada would suffer lower levels of economic growth and well-being due to its dependence on exporting its natural resources,” and then, after some testing of her own, reaffirms this position. Her research is of interest in its own right but quite misleading as to Innis.

It is not even clear that Innis can be read as holding to such a pessimistic view. The economic historian Peter George, in an overview of the history of mining in Ontario in 1967 writes: “Innis believed that the mining industry would reduce Ontario’s dependence on the export of staple commodities  by contributing to a highly integrated advanced economy” and adds “Ironically Innis was wrong in his optimism with respect to mining.”

Innis was, it must be insisted, an economic historian  and can hardly be said to have had a central interest in “prediction”  – or even policy which is the central concern of the economist today. In fact, Olewiler offers no evidence that he was wrong in his historical writings which is what matters most in an evaluation of Innis. The jury can give little weight to Olewiler’s substantive contemporary findings, post-1990 – being  two decades of a half-millennium!

Olewiler’s error lies in imagining that she is giving a definitive assessment of Innis or of the staple approach to Canadian economic history.

What is lost in Olewiler’s reductionism of Innis is the breadth and depth and sheer power of his historical writings: “The economic history of Canada has been dominated by the discrepancy between the centre and the margin of western civilization. Energy has been directed toward the exploitation of staple products and the tendency has been cumulative…Agriculture, industry, transportation, finance and government activities tend to become subordinate to the production of the staple for a more highly specialized manufacturing country.”

It is true that Innis was incorporated in the 1960s and 1970s into the emergent New Canadian Political Economy where there was a tendency to see Innis as a pessimist and Mackintosh as an optimist on Canada’s economic prospects as an exporter of staples. But to be fair both to Innis and to the new political economists, their focus was more, much more, on Canadian dependence as a  marginal area within the American empire. This is not a matter on which Olewiler has anything to say; she is an economist and not a political economist and her answer must be seen in that context.

Daniel Drache described Canada as a case of “advanced resource capitalism” and Olewiler’s evidence on productivity supports that designation. Drache is also known as a leading analyst of the “staple trap” and it would be hard to find a clearer example of that than today’s bitumen.

Olewiler is also unaware of the important post-Innisian book by the respected economic historian W.T. Easterbrook, North American Patterns of Growth and Development (1990) which sees Canada’s economic history in a continental context in the long run as one of “growth, “of a “pattern of persistence” as a staple exporter, in contrast to a “pattern of transformation,” of “development,” in the northern United States. To return to mining as a staple, to further complicate the story, Canada’s new global dominance in gold might be cited today as evidence of imperial competence suggestive more of the transformation of a centre than the persistence of a margin.

Where Olewiler is to be lauded – and forgiven overall – and where Innis, albeit like the mainstream economists who were his contemporaries, was wrong, was with their general neglect of social costs such as the consequences for the environment of resource extraction. I am wholeheartedly in agreement with Olewiler that, whatever our view of Innis, climate change from fossil fuels – from oil and gas as staples – compels us to see their extraction as intolerable.

Olewiler is also right in seeing Innis as a student of regionalism and its exacerbation by staple exports, which is indicative of his relevance to the study of Alberta and the tar sands.  National policy on climate change is presently impaled by this. In the insightful language of Brendan Haley, the staples trap is alive and well as it has morphed  into the carbon trap. And as Gordon Laxer has demonstrated in his research on the tar sands, the staple approach has, unfortunately, been given a new life in Canadian studies. Olewiler, in her deft description of the tar sands and climate change, unwittingly affirms the staple approach and Innis in the large.

 

Value Creation vs Value Extraction in Today’s Economy

Book Review

Mariana Mazzucato. The Value of Everything: Making and Taking in the Global Economy. Allen Lane. 2018.

The playwright Oscar Wilde quipped that a cynic is a person who “knows the price of everything and the value of nothing.” As Mariana Mazzucato argues in her important and stimulating new book, “The Value of Everything,” that adage could be applied to the vast majority of mainstream, neo-classical economists.

Mazzucato is the author of the previous bestseller, The Entrepreneurial State, which argued that governments have been absolutely pivotal to the innovation process in successful advanced industrial economies, often taking on big risks and opening the way for later private sector investment. Her new book broadens the argument, claiming that mainstream economics is systematically wrong about the value creation process and needs to be replaced by a new framework which distinguishes clearly between value creation and unproductive and destructive value extraction.

This argument is important in setting the stage for a social democratic economics and a genuinely mixed economy where governments would take an active economic leadership and investment role and tightly regulate the private sector in the public interest. Social democrats have too often conceded to the argument that private sector entrepreneurship is the driving force of wealth creation, and that governments should largely confine themselves to re-distribution of income and wealth through progressive taxes and welfare state programs.

Contemporary neo classical economics makes market prices the only measure of value, and sets aside the distinction made by the classical economists (Smith, Ricardo and Marx) between productive and unproductive economic activity and labour. In the neo classical world, profits reflect and are justified by the productive contribution of capital, and the fact that goods and services are sold on the market for a profit shows that they have value to consumers. In this light, the national economic accounts largely exclude or hugely undervalue production outside the market by households and by governments, and fail to register the fact that many significant private sector activities are parasitic on the productive economy and actually destroy value.

The dominant paradigm was actually overthrown at a highly theoretical level during the famous Cambridge capital controversy of the 1950s and 1960s, when Joan Robinson argued that profits could not be shown to reflect returns to capital, but rather reflected the balance of bargaining power between capital and labour. To be sure, investment in physical capital and research by the private sector make an important contribution to value creation, but wealth creation is above all a social process.

It is nonsense to argue that the wealth and income of hedge fund billionaires reflects their individual productive contribution, as opposed to their ability to extract profits from socially created value. Many progressive economists such as Nobel prize winner Joe Stiglitz argue that much of the modern economy consists of sectors in which rents or excess profits are extracted by dominant businesses due to limited competition and control of intellectual property rights among other factors. For example, big pharma and the tech giants like Google and Facebook earn profits well above normal rates of return due to their power to shape markets.

Mazzucato closely documents the value extraction role of the finance sector, whose share of total profits has grown rapidly since deregulation in the 1970s. While banks and other financial institutions do play a productive role in part by directing financial capital to productive uses, most real business investment is in fact financed by retained corporate earnings. Meanwhile, finance has directed resources to almost purely speculative and economically destabilizing activities such as hedge funds and creation of exotic financial instruments such as derivatives which merely transfer dollars between winners and losers, as in a casino where the dealer always wins.

As well, finance has had damaging impacts upon real economy highly productive businesses by inisting on maximizing shareholder value and demanding short term profits paid out through dividends and share re purchases as opposed to providing ‘patient’ capital for long term investment in equipment and innovation which boost real value added and productivity. Despite years of so-called financial innovation, it is hard for truly innovative new companies to attract capital since even venture capital funds are oriented to a quick turnover of capital and have very high “hurdle” rates of return In this context, very early start up capital often comes from governments which are prepared to take bigger risks for bigger long-term payoffs.

Mazzucato further argues at length that governments play a much more important role in value creation than is often appreciated. Much of government activity is treated in the national economic accounts as consumption, even through public services help create a great deal of value in the private sector. Public sector spending in areas such as education at all levels and basic research is very much part of the social process of production and value creation, and governments often create the markets served by the private sector. For example, the DARPA program in the United States created the internet and the basis for much of the digital information economy through basic research and support for private sector pioneers.

It has only been recently that government investment has been partially recognized as such in the economic accounts, and conventional accounting still judges the value of public services to be the costs of inputs, mainly labour. By this definition, more public spending cannot raise productivity and value-added in the economy.

As in her previous book, Mazzucato is very much an advocate of an expanded entrepreneurial role for government in supporting, not just research and high levels of public investment, but also in setting ambitious goals and missions, such as decarbonizing the economy. She argues that governments should take an ownership stake in the productive economy to collect a social return on public investment for citizens which could be used to fund social programs and public services as well as to create greater social equity. In the Canadian context, she would likely favour taking large equity stakes in innovative enterprises to provide long term capital for growth, while also seeking greater control of the economy and a fairer distribution of income and wealth.

The Value of Everything is a stimulating and informative overview of value creation and destruction in today’s economy. It is very much part of a wider project to develop a new progressive and social democratic economics oriented towards the creation of real value and social equity, as opposed to maximizing GDP.

Andrew Jackson is Adjunct Research Professor in the Institute of Political Economy at Carleton University, and senior policy adviser to the Broadbent Institute

An Analysis of Financial Flows in the Canadian Economy

An essential but perhaps overlooked way of looking at the economy is a sector financial balance approach. Pioneered by the late UK economist Wynne Godley, this approach starts with National Accounts data (called Financial Flow Accounts) for four broad sectors of the economy: households, corporations, government and non-residents.

Here’s how it works: in any given quarter or year each sector can be a net borrower or lender, but the sum of the four sectors’ borrowing/lending must equal to zero. This is an accounting identity reflecting the fact that one sector’s borrowing must be another’s (or the combination of all others’) lending.

Consider a government deficit. The flip side of that deficit is that some other sector(s) is in credit by the same amount. For example, a $1 billion in government borrowing must be matched by $1 billion in lending from some combination of households, businesses and non-residents. The same is true about the balances for any other sector. The overall balance for the domestic economy (households, corporations and government) must be offset by an equivalent balance vis-à-vis non-residents.

We can look at these flows over time and map them on to events and policy actions affecting the Canadian economy. Some caution must be taken around interpreting causation in this analysis, but it is a useful framework for thinking about what’s happening in the economy.

Figure 1 shows the four sector balances going back to 1990 (as a percentage of GDP). The lead up to and period after the 2008 global financial crisis is also of great interest. Lines above zero represent a credit position, or net lending; below zero is a deficit position, or net borrowing.

Figure 1:

Source: Statistics Canada, Financial Flow Accounts, Table: 36-10-0578-01 (formerly CANSIM  378-0119)

 

Let’s start with government, in this case the combined federal and provincial government balance (in grey). Many readers will remember the large government deficits of the 1980s and early 1990s, which were headline news and to this day have biased the thinking of all political parties towards austerity. In the early 1990s, those government deficits were largely financed by households (blue) and non-residents (yellow).

As the Canadian economy recovered from a bad recession in the early 1990s, it gained strength through the rest of the decade. Strong revenue growth combined with spending restraint drove combined federal and provincial deficits to zero by 1997, followed by surpluses for most of the next decade (apart from two very small deficits in 2002 and 2003).

In the wake of the 2008 financial crisis we then see the government balance drop to a deficit of 4.7% of GDP in 2010, reflecting expansionary fiscal policy. Relative to GDP these later deficits are nowhere near as large as the deficits in the early 1990s. In each case of deficit, however, it is useful to remember the flip side: the private sector wanted to buy government bonds. Around 2008-10 in particular, investors wanted safe havens in which to place their money.

The changing behaviour of households (in blue) is significant. Historically, it was households who were net lenders to corporations and governments. I was not able to get data prior to 1990 online but that surplus position for households continues before 1990 as well.

That dynamic changes in the mid-1990s. As governments borrowed less, households lent less. But when governments turn to deficits after 2008 it is not households from whom they are borrowing (as would have been expected given historical patterns). Indeed, households become net borrowers as of 1997 and remain so to this day, with net borrowing peaking at 4.8% of GDP in 2007. There is some retrenchment back to 2.2% of GDP by 2009, but household borrowing starts to grow again in the 2013 to 2017 period, and hits 3.5% of GDP in 2017.

This should not be a surprise to anyone following the Canadian economy, in particular the run-up in mortgage debt in recent years. This era, especially 2001 onward, is characterized by very low interest rates, which enable households to take on more debt for a given level of income. And as home prices rose, this new equity for homeowners allows for even greater debt loads. Unfortunately, these data do not break down the distribution within the household sector, so the total is masking some deeply indebted households while some percentage of wealthy households would be in credit positions.

What about corporations? Historically corporations borrowed from households (before the period in Figure 1), but starting in the 1990s, then really picking up in the 2000s is the fact that corporations become net lenders. A study from Statistics Canada attributed this to surging profits accompanied by a slowdown in capital investment (i.e. machinery, equipment and factories) and an increase in financial investments. This pattern of “dead money” – in the words of then-governor of the Bank of Canada Mark Carney – has deteriorated in recent years and the corporate sector even goes into deficit in 2015.

Figure 2 breaks out the corporations balance into financial (banks, insurance companies, etc) and non-financial corporations. Financial corporations are consistently in a net lender position, as would be expected. Non-financial corporations show greater volatility, but notably swing into a net borrowing position since 2012.

Figure 2: Net financial investment of financial and non-financial corporations

 

Finally, go back to Figure 1 and look at non-residents. In the early 1990s non-residents lent to Canadian governments, but during the 1999-2007 period Canadian corporations were net lenders to non-residents, perhaps reflecting trade and investment liberalization.

After 2008, we see a dramatic shift to non-resident lending, and at fairly large magnitudes of around 4% of GDP per year. Even while government deficits shrink after 2010, the total inflows from non-residents continue through to 2017. These data do not tell us from which countries the flows from non-residents are coming, although the US is historically Canada’s largest foreign investor by far, followed by several European countries (Netherlands, Luxembourg, UK and Switzerland).

Overall, this analysis shows some major shifts in the relationships across sectors of the Canadian economy. The shift of households into an ongoing deficit position is notable, as is the role of non-resident lending in recent years. Restrictions to dampen housing markets and the introduction of foreign buyer taxes in BC and Ontario suggest non-resident lending will decline as a share of GDP. And the record levels of household indebtedness, plus increases in interest rates, also point to a potential rebalancing for the household sector.

** With thanks to Joelle Leclaire and David Pringle for comments on an earlier draft.

Carey Doberstein’s book on homelessness governance

I’ve just reviewed Professor Carey Doberstein’s book on homelessness governance (UBC Press). The book looks at the way decisions were made pertaining to funding for homelessness programs in Vancouver, Calgary and Toronto during the 1995-2015 period.

Points raised in my review include the following:

-Homelessness trends look quite different across the three cities. For example, it can be growing in one city, but declining in another.

-One of the book’s main arguments is that better decisions pertaining to homelessness programming are made when multiple stakeholders are engaged in decision-making early and often.

-The book argues that Vancouver and Calgary have done a relatively good job of such engagement—more so than Toronto.

My full review can be read here.

(A modified version of this review will appear in an upcoming edition of the Canadian Journal of Political Science.)

Ontario Electricity Sector V – What they knew, and when they knew it…

Last month I published a full-length article in the “The Monitor” magazine providing a “how we got here” analysis of the Ontario electricity sector and some options for the next Government.  Since then, two things have changed: first on May 31 two investigative journalists, Carolyn Jarvis and Brian Hill, wrote an excellent story for Global News about how successive Liberal Ministers of Energy ignored expert agency advice, which resulted in Ontario households having to pay billions of dollars more for electricity (see 3:51 Global News video here); and second, on June 2 the current Liberal Premier conceded that the Liberal party will not win the election to be held tomorrow (June 7).

My article brings together and updates the four electricity-related blogs that I’ve prepared at the PEF (first, second, third and fourth), focusing on the gradual, stealth privatization of electricity generation and showing how criticism of this process by progressive groups was muted by the promise of energy democratization and renewables (wind and solar) generation that would help reduce emissions and pollution. The electricity sector in Ontario became a prime case study of some of the inequality-creating trends buffeting our societies. Corporations (and their investors) who secured lucrative contracts and high-income households and speculators that could afford solar panels made out like bandits, while low-income households in Ontario faced growing electricity poverty. When prices became a political liability, the government responded not by going after the power producers, but rather by borrowing on behalf of ratepayers. I argued that objectives matter, and that the experience in Ontario shows that governance, policy and implementation matter even more.

Read more »

Ford Plan for Ontario – Potential Employment Impacts

Ontario Conservative leader Doug Ford finally released a partially costed version of his election promises in his Plan for Ontario in the last week before the election. This includes approximately $7.6 billion in tax cuts and revenue reductions and a net $500 million reduction in annual spending.[I]

At the same time, Ford has also promised that “we will balance (the budget) maybe the third or fourth year” e.g. by 2021/22. While Ford has claimed he wouldn’t lay off public sector workers—unlike his predecessor Tim Hudak who promised he’d lay off 100,000—with his additional billions in tax cuts, it will be impossible to balance Ontario’s budget in three or four years without job losses.

This analysis provides best guess estimates of the employment impact of Ford’s promises using economic multipliers publicly available from Statistics Canada and Finance Canada.  A previous post by Edgardo Sepulveda includes an analysis of the impacts on inequality of the different parties’ fiscal plans, finding that the Ford plan would increase inequality the most, while the NDP plan would reduce it, while a recent post by Jim Stanford includes a prescient guestimate that Ford’s plan would lead to a net loss of about 75,000 jobs.   The analysis provides a more detailed summary estimates of the likely impact of Ford’s plan on jobs using these multiplier tools.

Ford has said he would balance the budget by achieving “efficiencies” through spending cuts of about 4%, but he hasn’t provided any details of those. Given his promises of over $7.6 billion in annual tax cuts, a 4% cut to the Ontario government’s overall spending still wouldn’t be enough to balance the budget by 2021. He’d need to cut Ontario’s program spending by 4.9% from its projected levels in 2021/22 to eliminate the deficit[v]. In the absence of any further information from Ford and the Conservative party of what degree and how he would cut spending, this analysis considers three scenarios:

  1. A proportional cut to Ontario’s program spending[ii] of 4% or $6.2 billion effective in 2021. This would still leave a deficit estimated at $1.3 billion for that year using the Liberal government’s accounting.
  2. A proportional cut to Ontario’s program spending of $7.6 billion or 4.9% of program spending that would be required to balance the budget by 2021 given Ford’s additional tax cut promises.
  3. A cut to public spending of $13.6 billion or by 8.8% of program spending, in 2021. This is the amount that would be required to balance Ontario’s budget in 2021 using the Auditor General’s recommended accounting treatment for the Liberals Fair Hydro Plan and net pension assets, which adds $6 billion to the deficit.

The job losses from these spending cuts would be counter-balanced to some degree by indirect and induced job gains resulting from increased private sector spending resulting from Ford’s promised tax cuts. However in all these scenarios, the public and private sector job losses associated with spending cuts would significantly exceed job gains from tax cuts. In fact, even with the more modest spending cut scenario, the largely private sector job losses resulting from cuts to public spending would exceed the jobs generated from tax cuts.

Read more »

The Bank of Canada should target full employment: 61 economists

On May 28th, 61 Canadian economists (myself included) signed the following letter urging the federal government to instruct the Bank of Canada to consider full employment and not only inflation when conducting interest rate decisions.  It was through the great organization of Mario Seccareccia that this was made possible and has received reviews by several media commentators, notably Barrie McKenna and Neil Macdonald.  Follow the links for the PDFs of the English letter, French letter.  This is the text of the English letter:

Letter Addressed to Honourable Bill Morneau, Federal Minister of Finance of the

Government of Canada, by Canadian Economists in Support of a Multi-Goal Mandate for the Bank of Canada

We wish to encourage the Canadian Government and, more specifically, the federal Minister of Finance, the honourable Bill Morneau, to instruct the Bank of Canada to pursue policies more consistent with its official broad mandate as stipulated in the preamble to the Bank of Canada Act:

“ … to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada.http://lawslois.justice.gc.ca/eng/acts/B2/page1.html

Read more »

Ontario Election: Inequality Impacts of Fiscal Plans

In the context of Ontario’s upcoming June 7 election, I just finalized an article on the CCPA’s “Behind the Numbers” blog, exploring the fiscal plans of the three major political parties from a historical and comparative context. I concluded that while the Ontario election offers voters three distinct fiscal visions, it is also true that all three would maintain Ontario’s comparatively low program expenditures and own-source revenues, at least during their first term. Building on my prior work examining the impact of fiscal policy on inequality, I develop a novel, regression-based model to forecast the impact that each fiscal plan is likely to have on income inequality in Ontario, as measured by the after-tax income Gini coefficient and conclude that the NDP would decrease inequality moderately, the Liberals would decrease it slightly, and the PCs would increase it significantly.

Read more »

NDP Math Error will Help the Party, Not Hurt It

The number-cruncher in me cringed in sympathy for the anonymous research nerds who made the now-famous math error in the Ontario NDP’s fiscal platform. They wrongly added a $700 million contingency reserve to net revenue, instead of to expenses.  The result is an underestimation of the planned deficit (if we include that reserve – more on that below) by $1.4 billion in each year.

Pompous voices predictably crowed that this error confirms the NDP’s supposed lack of fiscal credibility. In practice, though, this accounting tempest will turn out to be a non-event in this dramatic election campaign – and in fact, it may counterintuitively help the party’s surging campaign, rather than hurting it. Read more »

Rethinking the economics of extreme events

Review of Worst-Case Economics: Extreme Events in Climate and Finance by Frank Ackerman

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Long ago economics was termed “the dismal science,” but in recent years that title has arguably been passed on to climate science, with its regular and dire warnings that humanity needs to rapidly transition off of its use of fossil fuels for energy. In the face of such calls to action, progress has been frustratingly slow. The 2015 Paris Agreement offers some hope, as does the small-but-growing share of renewable technologies, but by and large countries are not doing enough to meet Paris’ grand aspiration of keeping temperature increase between 1.5 and 2 degrees above pre-industrial levels.

Our collective inability to rise to the climate challenge may be related to our inability to imagine the consequences of inaction. Humans tend to think about immediate threats to our well-being, whereas climate change is a slow burn without clarity about how it will play out spatially and temporally. We understand that tipping points with irreversible consequences lie ahead, but do not really know at what point those critical thresholds will be crossed.

Worst-Case Economics steps into this fray by providing a refreshing look at the state of the economics discipline and how its standard toolkit leaves us poorly equipped to address two pressing concerns of the 21st century: financial crises and climate crises. The book aims to infuse recent lessons of the former into the latter.

Over the years I have greatly admired Frank Ackerman’s work on cost-benefit analysis, the social cost of carbon, and the economics of climate change. This book compiles much of that analysis under one cover, but goes beyond by critically examining how economists think (or don’t think) about extreme events.

Ackerman shines when dissecting the core assumptions of neoclassical economics, the dominant academic form of the discipline. His critique begins with 19th century economic models emulating classical physics and the concept of equilibrium. But while physics moved on in the 20th century, economics did not. So we are left with theoretical models that require an array of simplifying assumptions that abstract away from the nature of real-world economic problems. In the simplified neoclassical view of the economy humans are assumed to be rational, self-interested maximizers, who are unswayed by advertising, fashion or the behaviour of their peers. There is no market power, insider information, nor external costs imposed on third parties (like carbon emissions).

To be fair, each of these limitations has been explored in the economics literature, but usually only as one-offs, while still upholding the other standard assumptions. Ackerman points out that it is precisely these deviations from the model – bounded rationality, susceptibility to social pressures, imperfect markets – that are central to understanding financial or climate crises.

That said, Ackerman may be putting too much blame on economics, and not enough on the failure of politics to implement adequate climate policies. Climate change is a collective action problem that requires governments to step in, but this fundamentally conflicts with conservative values and the free market worldview of the right.

One area where economists have had a disproportionate effect on the public climate conversation is around carbon taxes. The economics of carbon taxes goes back to the Arthur Pigou looking at smokestack England in the 1920s, and the idea that there are external costs imposed onto third parties from certain market transactions. In the case of carbon emissions the fix is to “internalize the externality” through a price on carbon.

Ackerman comments that “ ’getting the prices right’ is an incomplete response to climate change and other complex environmental problems.” We don’t actually know when certain tipping points will be reached, and poorly understand the value of expected damages. We can develop estimates from models but they are riddled with uncertainties about the future. At one extreme, the “dismal theorem” proves the value of carbon reductions to be literally infinite if we accept worst-case scenarios that destroy the sources of human well-being or that undermine the ability of the human race to survive.

Standard cost-benefit analysis is particularly ill-suited for addressing extreme risks in Ackerman’s view. Even under ideal circumstances, attempting to put a dollar value on human life or suffering is a task that is fraught with difficulty. For finance and climate, cost-benefit analysis has limited utility because it looks at potential outcomes in terms of averages, and does not consider low-probability events with catastrophic implications. It is one thing to assess risk when dealing with well-defined problems with an accumulated evidence base from past events; quite another when uncertainties abound and climate change itself affects the probabilities and magnitudes of damages.

In place of neoclassical approaches, Ackerman shows that financial crises are far more common than would be expected from a “normal” distribution (i.e. the standard bell curve). The same non-linear relationship is likely for climate extremes meaning our standard practices greatly understate the likelihood of extreme events. Such extreme weather events are already becoming our new normal: heavy precipitation events that overwhelm storm sewers; heat waves causing premature death; and, extreme dry conditions fueling forest fires.

Insurance is central to a response. Ackerman notes that people are risk averse and so are willing to pay for a proposition that is likely to lose them money on average in order to guard against a truly catastrophic outcome. It would be interesting to scale this thinking globally to events larger than private insurance companies can handle: regional crop failures or disasters that displace millions of people.

Likewise, developing scenarios can help us make decisions. But when all we can know is what the worst-case scenario might look like, the precautionary principle should guide our decision-making. Ackerman invokes the war-time mobilization as a model for rapidly dealing with climate change.

The book’s linkage to our growing understanding of financial crises provides much interesting fodder. But the analogy is imperfect: economic thinking based on periodic financial crashes does not ultimately translate well into the climate discussion of crossing irreversible and catastrophic tipping points, such as changes in the Earth’s ocean circulation system, the collapse of the Amazon rainforest, or the loss of Greenland’s ice sheet.

It may just be that rigorous mathematical economic models are not suitable for these lurking disasters. Ackerman concludes by stating: “There is no fixed formula for good policy decisions about the greatest risk, no calculation that leads automatically to the right answer. Politics, ethics, and judgment inevitably enter the decision-making process, along with science and economics.”

In other words, just get on with it. The future is at stake and we can, and must, do better.

 

Winner of the 2018 Galbraith Prize in Economics: Jim Stanford

The Progressive Economics Forum is pleased to announce Jim Stanford as the winner of the 2018 Galbraith Prize in Economics.

The selection committee included Fletcher Baragar (Manitoba), Hassan Bougrine (Laurentian), Toby Sanger (Canadian Union of Public Employees), Christine Saulnier (CCPA-NS) and Kevin Young (University of Massachusetts at Amherst), and was chaired by David Pringle (PEF). Jim has accepted the Prize and will deliver the Galbraith Lecture at the Canadian Economics Association meetings at McGill University, Montreal on Saturday, June 2 (https://economics.ca/2018/en/program.php).  Many thanks to our judges and to the Galbraith family.

Below is the nomination statement of Dr. Stanford by Marc Lee (CCPA-BC) and thirteen other signatories, which does a great job to summarize his extensive career.

****************
We nominate Jim Stanford for his outstanding contributions to progressive economic thought and movement-building in Canada over the past two decades.

Jim’s PhD dissertation at the New School developed a CGE model using real-world assumptions leading to results that challenged the mainstream view about the benefits of NAFTA.

Jim rose to prominence as a public intellectual as Economist for the Canadian Auto Workers union and Unifor (for which he played a significant role in its founding). His work at the bargaining table supported the interests of hundreds of thousands of workers in Canada.

Also during this time, Jim was a key Research Associate and Board member of the Canadian Centre for Policy Alternatives. He published accessible op-eds and research papers on a wide range of economic policy topics, including the federal budget, free trade deals, industrial policy, labour markets and regional development.

At the CCPA, Jim was a guiding force behind the Alternative Federal Budget. His AFB forecasts regularly embarrassed the federal government, whose “prudence” often caused greater-than-necessary austerity. Jim’s track record was perhaps the single most influential reason why Canada now has a Parliamentary Budget Officer.

Jim’s first book, Paper Boom, published in 1999, was an early critique of financialization – the split between the real economy of work and wages and the paper economy of speculation and finance. His second book, Economics for Everyone, is a guide for activists, trade unionists and the general public, and is notable for its inclusion of the history of economic thought and discussion of capitalism as an economic system.

In recent years, Jim has been a respected contributor to economic debates via The Globe and Mail and CBC news panels, among other outlets. He has always done so with great compassion and humour.

All the while Jim managed to contribute papers to academic journals and conferences, and has mentored dozens of students and young economists.

Finally, Jim’s role in starting the Progressive Economics Forum cannot be understated. His efforts to build a social network of Canadian economists spanning academia, labour, research institutes and independent researchers is an enduring legacy from which we have benefitted.

All told, Jim’s accumulated body of work and contributions to labour and social movements make him an ideal winner of the 2018 Galbraith Prize.

Saskatchewan budget misses opportunity on rental housing assistance

I recently wrote a ‘top 10’ overview blog post about the 2018 Saskatchewan budget. Following on the heels of that, I’ve now written an opinion piece about the budget’s announcement of a phase out a rental assistance program for low-income households.

Points raised in the opinion piece include the following:

-Across Saskatchewan, rental vacancy rates are unusually high right now, making this a good time to provide rental assistance to tenants for use in private units (indeed, right now it’s a so-called renter’s market in Saskatchewan, meaning it’s a relatively good time for tenants to negotiate rental agreements with private landlords).

-Thus, rather than phasing out the program, it would have been sensible to have expanded it.

-Phasing it out will very possibly lead to more homelessness, which in turn may lead lead to higher public costs elsewhere (especially to the health care sector).

Interestingly, just yesterday the Saskatchewan Landlord Association made many of these same points themselves; they like the rental assistance program, as it increases demand for its members’ housing units (many of which are currently sitting empty).

It’s of course also important for government to finance housing owned by non-profit entities. I recently wrote about the importance of a variety of measures to improve housing affordability in the housing chapter of this year’s Alternative Federal Budget.

Meanwhile, the link to my recent opinion piece is here.

 

Ten things to know about the 2018 Saskatchewan budget

I’ve written a ‘top 10’ blog post about the recently-tabled Saskatchewan budget. Points raised in the blog post include the following:

-This year’s budget was quite status quo.

-Last year’s budget, by contrast, included a series of cuts to social spending. Last year’s budget also announced cuts to both personal and corporate income taxes that were subsequently reversed.

-Saskatchewan has one of the lowest debt-to-GDP ratios in Canada.

-This recent budget announced the phase out of a rent supplement program that helps low-income households afford rent on the private market.

Here’s the link to the full blog post.

The Contemporary Relevance of Karl Polanyi

The political economist Karl Polanyi, author of the 1944 volume The Great Transformation: The Political and Economic Origins of Our Time, is arguably better known today than during his lifetime. The time has come for a major biography of Polanyi, Karl Polanyi: A Life on the Left by Gareth Dale. It is thoroughly excellent and provides the occasion to ponder the relevance of Polanyi today.

His book was a response to more than a century of globalization that fell apart in the 1920’s and 30’s, culminating in the Great Depression, Hitler’s fascism and World War II – all of which came to be seen, in the boom times of the 50s and 60s, as  merely bad old history. Meanwhile in recent times the renewed wave of globalization following that War went seriously awry in the financial crisis of 2007-8 and the emergence (again) of the fascistic alt.right, with the unimaginable triumph of Trump in America, the very centre of global capitalism. Economics had wandered off to the right and was less than useless on such matters. Politics had to be brought into that universe and Polanyi’s progressive economics a.k.a. political economy was suddenly relevant again, there for the taking.

By 2001 when a new paperback edition of The Great Transformation was published there was sufficient unease about the drift of things global that the progressive Nobel prize winning economist, Joseph Stiglitz was asked to write a new Foreword, and he began, in true Polanyi style, by citing the reaction, the progressive countermovement, evident in the public marches against international financial institutions in Seattle in 1999.

Now, in 2018, things have degenerated sufficiently that it makes sense to go back and see what Polanyi saw as the explanation for fascism and how that might cast light on today’s darkness. Ironically, Hungary, from whence Polanyi came, has, as I write, re-elected to a third consecutive term, a right populist alt.right government with a stunning two-thirds majority.

For Polanyi, famously, there was a double movement in the annals of political economy: the driving force of the market creating losers as well as winners, as movement, the responding force of democracy as counter-movement. If the outcome became one of stalemate, there would be crises without a government able to resolve them, a situation much worsened historically by the rules imposed by the international gold standard.  The deadlock created an opening for extremism, of the revolutionary left as in the Soviet Union as reaction to World War I, of fascism as in Italy and Germany, with the latter as reaction to the former. Each in its own way meant the end of democracy. Out of all this came the barbarism of World War II.

Today, the gold standard has been replaced by the iron laws of globalization. The extreme neoliberalism of the American government precluded offering protection, or assistance, to the losers, notably in the American rust belt who became the core support for Trump.  We are now observing a threat to the American way of conducting politics, of American democracy, analogous to that of the 1930s. The creative response then was the New Deal, its legacy now exhausted. Today it is Trumpism, still in its early days, the fullness of which is uncertain, as is the fate of America and thereby of the rest of us.  At the same time, similar forces led to Brexit, the consequences of which, for Europe and, again, the rest of us, remain to be seen. Polanyi sees unresolved national issues – open sores, bleeding wounds, like anti-semitism and the humiliation of the settlement of World War I in Germany – as critically important to the mobilization of the masses to fascism. For Trumpism, racism, white nationalism, with deep roots in America,  is manifestly the rallying cry.  Stay tuned in, CNN or Fox, watch one, conjure up the other, think like Polanyi.

Newly-signed FPT housing framework agreement

I’ve just written a blog post about the newly-signed federal-provincial-territorial housing framework agreement. This agreement builds on (and helps move forward) Canada’s National Housing Strategy, which was released last fall.

One of the points made in the blog post is that the federal government’s stated objective of removing approximately half-a-million households from core housing need is very ambitious, in light of what we know about the Strategy.

The link to the full blog post is here.

2018 PEF Student Essay Contest is Open!

The 2018 PEF Student Essay Contest is  open!

The deadline for submitting essays is quickly approaching: April 30, 2018.

Please use this  submission form  (fiche d’inscription concours).  You can download a poster (EnglishFrancais) here — please help us out and post one in your department.

2018 PEF ESSAY CONTEST RULES

ELIGIBILE ENTRANTS
? Open to all Canadian students, studying in Canada and abroad, as well as international students presently studying in Canada. All entrants receive a complimentary 1-year membership in the Progressive Economics Forum.
? The definition of “student” encompasses full time as well as part time students.
? Students eligible for the 2018 competition must have been/be enrolled in a post-secondary educational institution at some point during the period of May 2017 – May 2018.

LEVELS OF COMPETITION
There are two levels of competition:
? One for undergraduates;
? One for graduates.*
*Note: Those who have previously completed an undergraduate degree or a graduate degree, and are returning to do a second undergraduate degree will only be considered for the graduate student competition. The same holds for student who spend part of the academic year in a graduate program.

CONTENT OF THE ESSAY
? Entries may be on any subject related to political economy, economic theory, or an economic policy issue, which best reflects a critical approach to the functioning, efficiency, social, and environmental consequences of unconstrained markets.

ELIGIBLE SUBMISSIONS
Eligible entries will be…
? …sent by email at the latest on April 30, 2018, to:
pefessaycontest@gmail.com
? …the only submission by the author(s) (i.e. one submission per person);
? …between 20-40 pages in length, and typed in 12-point font, double spaced;
? …referenced to academic standards (including any data);
? …written in either English or French;
? …original essays that do not infringe upon the rights of any third parties;
? …accepted on re-submission once;

? …unpublished work;
? …accompanied by a signed scanned file of the completed PEF Essay Contest Submission Form.

Entrants consent to having the Progressive Economics Forum publish essays from winners and those receiving honourable mention. Each applicant will submit a valid email and postal address for correspondence.

ADJUDICATION
? A panel of judges selected and approved by the Progressive Economics Forum will judge entries.
? Entries will be judged according to the following criteria: substance and originality, writing style, composition, and organization.
? The Progressive Economics Forum reserves the right not to award a prize or any prize where submissions do not meet contest standards or criteria.

WINNING SUBMISSIONS
? The winning essays will be announced at the Annual General Meeting of the PEF.
? A cash prize of $1,000 will be awarded the winner of the graduate competition; and $500 will be awarded to the winner of the undergraduate competition.
? The winning essays will be published on the PEF website.
? Judges’ decisions are final.

*******

Concours de textes étudiants – édition 2018

Qui peut participer ?

? Ouvert à tous les étudiants canadiens, qui étudient au Canada ou à l’étranger, ainsi qu’aux étudiants étrangers étudiant au Canada. Tous les participants deviennent gratuitement membres du Progressive Economics Forum pour un an.
? Le terme « étudiant » couvre les étudiants à temps plein et les étudiants à temps partiel.
? Pour être éligible à l’édition 2018 du concours, un étudiant doit avoir été ou être inscrit dans une institution post-secondaire à un moment donné pendant la période allant de mai 2017 à mai 2018.

Niveaux de compétition

 Il y a deux niveaux de compétition :
? Un pour les étudiants prégradués ;
? Un pour les étudiants gradués.*
*NB: Ceux qui ont déjà complété un programme prégradué ou un programme gradué et qui retournent faire un deuxième programme prégradué ne peuvent participer au concours qu’au niveau gradué. C’est la même chose pour tout étudiant ayant passé une partie de l’année dans un programme gradué.

Contenu du texte

? Les textes peuvent porter sur tout sujet relié à l’économie politique, la théorie économique ou une problématique en lien avec des politiques économiques, qui reflète une approche critique sur le fonctionnement, l’efficience, et les conséquences sociales et environnementales des marchés libéralisés.

Pour être accepté, un texte doit…

? … être envoyé par courriel, au plus tard le 30 avril 2018, à l’adresse suivante : pefessaycontest@gmail.com
? … être le seul texte envoyé par le(s) auteur(s) (un texte par personne) ;
? … avoir entre 20 et 40 pages, tapé dans une police de taille 12 points, à interligne double ;
? … avoir des références écrites selon les standards académiques (incluant les données);
? … être écrit en anglais ou en français ;
? … être un texte original qui n’enfreint pas les droits d’auteurs d’une tierce-partie ;

? … n’avoir été soumis au maximum qu’une fois auparavant (donc un texte peut être soumis un maximum de deux fois).

? … ne pas déjà avoir été publié ;
? … être accompagné par une fiche d’inscription pour le concours de textes du PEF complétée, signée et numérisée.

Les participants acceptent que le Progressive Economics Forum publie les textes des gagnants et de tout autre participant recevant une mention d’honneur.

Tout participant devra soumettre une adresse courriel qui fonctionne, ainsi qu’une adresse postale pour fins de correspondance.

Jugement

? Un panel de juges choisis et approuvés par le Progressive Economics Forum jugera les textes soumis.
? Les textes seront évalués selon les critères suivants : substance, originalité, style, ainsi que l’organisation et la cohérence de l’ensemble.
? Le Progressive Economics Forum se réserve le droit de ne pas décerner un prix, ou quelque prix que ce soit, si aucun texte ne remplit les critères ou n’atteint les standards.

Textes gagnants

? Les gagnants seront annoncés à l’Assemblée générale annuelle du PEF.

? Un prix de $1,000 sera attribué au gagnant du concours pour les étudiants gradués et $500 sera attribué au gagnant du concours pour les étudiants prégradués.
? Les textes gagnants seront publiés sur le site internet du PEF.
? Les décisions des juges sont sans appel.

 

A Tale of Two Books

Just published is Volume I of an exhaustive – occasionally exhausting – biography of Paul Samuelson. It’s titled Founder of Modern Economics: Paul A Samuelson Vol I: Becoming Samuelson, 1915-1948 and authored by Roger E Backhouse.

The two books of my blog title are Foundations of Economic Analysis, published in 1947, a revision of Samuelson’s Harvard doctoral dissertation, in which he unearthed the mathematical scaffolding of economic theory, and Economics: An Introductory Analysis, the first edition of his textbook which was published in 1948 and became an  instant bestseller which was to go through many editions. It’s a remarkable achievement, to simultaneously write a brilliant but quite inaccessible book on the foundations of economics and, at the same time, write a highly accessible first year text. The skills required to do both of these are combined in a single individual, which is a truly rare event.

Harvard had first hand knowledge of Samuelson’s genius but it somehow managed not to make him an offer sufficient to keep him at Harvard. Part of the reason was that MIT, having an economics department that taught economics to engineering students, was ready to launch itself into having a graduate program in economics, and Samuelson was the star around which they could assemble what quickly became one of America’s – if not the world’s – greatest economics department.

The challenge appealed to Samuelson. But it is made abundantly clear from this book that an anti-semitism that was pervasive in American universities was certainly in evidence at Harvard, but not at MIT.  (As for Canada. while a graduate student in economics at MIT, I dropped into the political economy department at the University of Toronto where I had done my undergraduate degree and one year of graduate study. I ran into one of the senior economics professors and when I told him I was at MIT he said in a matter of fact way, “That’s where they have that smart little Jew, Samuelson” – who was short.)

Back to the textbook. One of its distinguishing features was its focus on Keynes. Samuelson was a proponent of Keynes, though Backhouse makes the point that he partook of Keynes to a large degree through Alvin Hansen, who was at Harvard and was the key person who brought Keynesianism to America and Americanized it in the process.

As Backhouse hints,  that Americanization of Keynes consisted of embedding it as part of the essential base of America’s now central role in the world economy, of trade and finance. What began as revolutionary economics – of the Keynesian Revolution variety – was domesticated, reduced, to imperial economics. Progressive economists, like Samuelson,  were conservative, at best indifferent, outside their own terrain.

This latter  point escaped some MIT alumni on its governing council who thought Samuelson was a dangerous radical and tried to block the use of the text at MIT. Samuelson kept his cool and patiently dealt with complaints. The top administration totally backed Samuelson. A “compromise” was reached on the understanding that further readings included books by the American Chamber of Commerce and such like. Instructors showed their disdain for Samuelson’s critics by giving an assignment on finding all of  the errors in such screeds.

 

A second feature of the textbook was, notwithstanding Foundations, that the math in it did not go beyond that of Marshall. At MIT, where the text was, of course, used in  the introductory course for engineering students, Samuelson advised those of  us who taught sections thereof not to use any math beyond the text since engineering students would otherwise treat the course as applied math and not master the study of the economy.

 

 

Five things to know about the 2018 Alberta budget

On March 22, the NDP government of Rachel Notley tabled the 2018 Alberta budget. I’ve written a blog post discussing some of the major ‘take aways’ from the standpoint of Calgary’s homeless-serving sector (where I work).

Points made in the blog post include the following:  this was very much a status quo budget; Alberta remains the lowest-taxed province in Canada (and still the only province without a sales tax); Alberta still has (by far) the lowest net debt-to-GDP ratio of any province; and it’s been six years since social assistance recipients in the province have seen an adjustment in their benefit levels (to reflect inflation, for example).

The full blog post can be read at this link.

Ten proposals from the 2018 Alberta Alternative Budget

The 2018 Alberta Alternative Budget (AAB) was released yesterday—it can be downloaded here. An opinion piece I wrote about the AAB appeared yesterday in both the Calgary Herald and the Edmonton Journal.

Inspired by the Alternative Federal Budget exercise, this year’s AAB was drafted by a working group consisting of individuals from the non-profit sector, labour movement and advocacy sectors.

Here are 10 proposals from this year’s AAB.

  1. Introduce a 5% provincial sales tax. The AAB gives the Notley government credit for generating additional revenue by increasing both personal and corporate tax rates, while also increasing tobacco and fuel taxes. However, in light of the very substantial loss in revenue as a result in the drop of the price of oil, we’d like to see the Alberta government take one step further and introduce a provincial sales tax. A 5% provincial portion, added on to the 5% Goods and Services Tax, could result in a 10% Harmonized Sales Tax (HST). This would generate approximately $5 billion annually.

  Read more »

Media release: Alberta needs a provincial sales tax

(March 20, 2018-Edmonton) Today, a coalition of researchers, economists, and members of civil society released an alternative budget to boost Alberta’s economic growth while reducing income inequality.

“Alberta is on the road to recovery after a deep recession,” said economist Nick Falvo, “now is not the time to reverse the course.”

The document, High Stakes, Clear Choices, sets a progressive vision encouraging public investment to stabilize tough economic times, reduce poverty, support our seniors, and create good jobs.

The report reveals that, since taking office in 2015, the Notley government took important measures to support poverty reduction. These include: introducing the Alberta Child Benefit; the near doubling of annual spending on housing; and, increasing minimum wage.

The authors note, however, increasing staffing for long term care facilities, universal child care and pharmacare, and reducing class sizes in K-12 are necessary to forge ahead towards economic prosperity.

The report further calls for government action to implement budget processes honouring the duty to consult with Alberta’s Indigenous communities, as well as more funding for Indigenous programs.

“Budgets are always about choices,” says contributing researcher Angele Alook. “Alberta continues to have the lowest taxes in Canada and that is nothing to be proud of.”

Alberta could implement a 5% provincial sales tax and still be the lowest tax jurisdiction in the country, she added.

“Increasing tax revenues would provide a foundation for economic sustainability,” added Falvo.

Finally, the report emphasizes that Alberta must forge ahead with a more diversified economy and creating good, green jobs for Albertans.

Download report.

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Media contact:

Nick Falvo, Editor – Alberta Alternative Budget, (cell) 587-892-7855, (email) falvo.nicholas@gmail.com

 

Inequality-redistribution in Canada update

Two years ago I posted my first guest blog focused on income inequality, specifically how changes in Canada’s redistribution over the last three decades have increased after-tax income inequality, and how these changes compared to OECD trends. The figures and analysis in this post update the earlier blog, based on the most recent OECD data to 2015. I also look at the market inequality-redistribution relationship and find that Canada is the only country that combines low market inequality with low redistribution.

Figure 1 presents market and after-tax income Gini coefficients for Canada and selected OECD countries. Market income is before taxes and government cash transfers, while after-tax income is after such taxes and transfers. The Gini coefficient varies from 0 to 1.00, with higher values representing higher inequality. Figure 1 includes data on the USA, the four larger Nordic countries (“Nordics-4”): Denmark, Finland, Norway and Sweden) and the other eight OECD countries for which data are available from the mid-1980s (“Other OECD-8”: Australia, France, Germany, Italy, Japan, Netherlands, New Zealand and UK). I have annotated Figure 1 to explain these inequality-related concepts and data. Focusing on the last few years (readers can refer to the earlier blog for a longer-term analysis), Figure 1 shows a general continuation of recent trends. Market inequality in the Other OECD-8 and Nordics-4 has continued to increase, while the long-running economic expansion in the USA appears to have finally (and perhaps only temporarily) paused the long-term increase in market inequality in that country. Canada continues to have relatively low market inequality and average after-tax inequality.

 

Figure 2 shows the percentage point difference between market and after-tax income Gini coefficients and reflects the extent to which Governments reduce market inequality by taxes and cash transfers. The Nordics-4 have traditionally had the highest level of such redistribution, currently lowering inequality by about 50% more than Canada does. Over the last decade Canada and the USA have had about the same low levels of redistribution (the two lowest among the OECD).

 

Figure 3 shows the political-economy outcome of the market inequality-redistribution relationship. For each of the 14 OECD countries listed above, Figure 3 includes average market inequality plotted against average redistribution (as measured above). Figure 3 appears to include three distinct “clusters” of countries:

  • Low market inequality with medium redistribution, including Denmark, Netherlands, Norway and Sweden.
  • Medium market inequality with low redistribution, including Australia, Japan and New Zealand
  • High market inequality with high redistribution, including Finland, France, Germany and Italy.

These three clusters include a total of eleven countries, leaving three “outliers” that do not belong to any particular cluster. Canada is one of these outliers, being the only “low inequality / low redistribution” country. Others are the USA (high market inequality with low redistribution) and the UK (high market inequality with medium redistribution).

Each country’s inequality-redistribution outcome is the result of a series of complex national political-economy interactions. The cluster analysis in Figure 3 shows, however, that international and regional influences also matter. It is perhaps not surprising that Australia and New Zealand are in the same cluster, as is Japan. The “Nordic” cluster (including Netherlands but excluding Finland) could also be expected given proximity and historical ties. France and Germany being in the same cluster is also consistent with this hypothesis. That the UK is an outlier is perhaps not surprising (e.g. Brexit, etc.). The USA has always followed its own path and therefore is also a high inequality / low redistribution outlier.

Which brings us to Canada, another outlier, the only low inequality/low redistribution country. It has maintained Nordic-type levels of low market inequality via the public provision of universal human-capital-enhancing programs (e.g high quality health care, education, etc.), while implementing only USA-type levels of redistribution. Current political battles and outcomes related to the minimum wage, taxes and social assistance indicate that market inequality-reducing measures (e.g. minimum wage, etc.) continue to be more politically-feasible than those that increase redistribution and reduce poverty outcomes (e.g. more progressive taxation, increased social assistance, etc.). While fighting to maintain and expand universal social programs, progressives should work harder to prepare the political ground for Canada to increase redistribution, especially for when market inequality increases.

 

 

Homelessness and employment: The case of Calgary

I’ve just written a blog post about homelessness and employment, with a focus on Calgary (where I live and work).

Points raised in the blog post include the following:

-Persons experiencing homelessness usually have poor health outcomes, making it especially challenging to find and sustain employment.

-There are several non-profits in Calgary that assist persons experiencing homelessness to find and sustain work.

-Persons finding the most success in those programs tend to be relatively healthy (compared with their peers) and be between the ages of 25 and 60.

-In some cases, persons experiencing homelessness are overqualified for jobs.

-There is some evidence that subsidized housing can improve employment outcomes.

The link to the full blog post is here.

How to Measure and Monitor Poverty? LIM vs LICO vs MBM.

The federal government has promised to launch a Canadian Poverty Reduction Strategy in the coming weeks or months on the basis of now completed consultations with Canadians and the still ongoing deliberations of an advisory committee. As part of this process, there has been discussion about which poverty or low income measure or measures should be used for the purpose of monitoring levels and trends in the incidence of poverty and gauging the impact of poverty reduction policies. At various times, there have been calls for an official Canadian poverty line, as exists in the United States and some other countries, and some have called for poverty reduction targets which would require the specification of a poverty line or lines. (See https://www.canada.ca/en/employment-social-development/programs/poverty-reduction/reports/proverty-reduction-strategy-what-we-heard.html#section9 )

It should first be noted that any poverty line dividing the poor from the non poor at a given level of income and for a given household size is arbitrary and value-based. It explicitly or implicitly involves a judgement as how far below the mainstream people should fall before they are considered to be poor in terms of either their income or their ability to obtain the essentials of life. And any line must be used to tell us not just how many persons are poor at any point in time, but how far the poor fall below the poverty line. (For example, most social assistance recipients live in deep poverty, while most seniors in poverty are clustered just below the poverty line due to receipt of the Guaranteed Income Supplement to Old Age Security.)

The line should also be used to inform us how long the poor remain poor. (For example, social assistance recipients with disabilities tend to remain in low income much longer than the working poor who cycle in and out of poverty.) Finally, a useful poverty line should inform us of the incidence of poverty by age, gender, racial status and aboriginal status, disability status, economic family type, and so on, as well as by province and region.

A single poverty line as called for by some has the merit of being relatively simple and potentially easy to communicate. As well, a clear indicator showing the impact on the incidence and depth of low income of policies such as increased child and senior benefits could help build public support for a poverty reduction strategy.

However, choosing a single measure risks glossing over different concepts of poverty and overly minimizing the complexity of the issue.

Currently, Statscan provides annual data based on three different measures of low income – the LICO AT, the LIM AT and the MBM. (See CANSIM Table 206-0041 for detailed data on poverty using these measures.) LICO estimates are also presented on a pre tax basis but these are seldom used. While the three measures in use today are not described as poverty lines, they are generally used as such, and they all allow for assessment of levels and trends in a disaggregated fashion.

The LICO AT (after tax) tells us that a person or family is spending a much higher than average percentage of its income on the essentials of food, shelter and clothing (based on family size and with account taken of the size of the community in which the household resides.) The LICO line is based on 1992 living costs, so trends tell us how much progress has been made over time in terms of the ability of Canadians to purchase a basic basket of goods at 1992 spending weights..

The poverty rate in 2015 based on this measure was 9.2%, down from a high of 14.0% in 1983, but it can be questioned if poverty has really fallen so significantly. The LICO has fallen into disfavour because it does not tell us how many persons are unable to achieve a basic standard of living in terms of what Canadians are consuming today, as opposed to twenty-five years ago. For example, the LICO basket does not include the cost of internet access. The LICO does, however, give us some sense of the very long-term trend in the living standards of the poor, and tells us that there has been some absolute income growth over time among the poor.

The Market Basket Measure tells us that a household – in after tax terms, adjusted for family size – has insufficient income to purchase a modest basket of goods and services. The MBM was called for by federal and provincial ministers, and the composition of the basket was determined by government officials rather than by Statistics Canada. It has been calculated since 2002 for a reference family in a large number of communities, so it varies with the local price of housing and food. It is more than an extreme bare bones, basic needs budget insofar as it includes child care costs and the cost of a modest vehicle where transit is unavailable.

That said, there has been a lot of disagreement about the contents of the MBM basket, and many argue that it is a poor measure of the consumption gap between low income Canadians and the mainstream. MBM does not centrally view poverty as being about distance from the mainstream, bur rather as having an income which is insufficient to meet the basic needs of a low income family.

In 2015 the MBM rate at a national level was 12.1%.

The LIM measure (Low Income Measure After Tax) draws a low income line based on 50% of the income of a median household of the same number of persons. It is a purely relative measure with poverty being seen as having an income well below the norm defined as the income of a mid point Canadian family.

In 2015, the national LIM rate was 14.2%. This measure is based only on income relative to the national median income, and is not a measure of basic needs based on consumption.

LIM is very useful in terms of telling us how the bottom of the income distribution is doing compared to the broad middle-class, and how that is changing over time. It is also very useful in terms of international comparisons, telling us that the gap between the bottom and the middle is much wider today in Canada than many European countries, but that low income is much less prevalent in Canada than the United States.

The big problem with the LIM is that it does not take account of large differences in living costs between cities and regions. For example, no account is taken of very large differences in rents between big cities, or the high cost of food in many remote and rural communities.

There is not a great difference between the LIM and MBM measures when it comes to calculating the overall incidence of low income. Over the past five years, the LIM rate has averaged 13.5% compared to 14.2% for the MBM rate. Both rates have remained fairly constant since 2002. (The gap in 2015 – a 14.2% LIM rate compared to a 12.1% MBM rate – was unusually large.)

However, there have been some important differences over time and for some sub populations.

There is a huge difference between the LIM and MBM poverty rates for seniors (14.3% vs 5.1% in 2015.) Also, there have been big changes over time in the LIM based poverty rate for seniors. This fell from 33.1% in 1977 to a low of 3.9% in 1995, before increasing to 14.3% in 2015. The income gap between seniors and other families narrowed initially due mainly to improvements in public and private pensions, but in recent years the incomes of many seniors have been falling behind those of working age families in relative terms. This is not captured in the MBM measure. (As an aside, the LIM poverty rate for seniors would likely not rise if Old Age Security and the Guaranteed Income Supplement were to be indexed to wage growth and not just inflation.)

The apparent stability of the LIM rate over time also hides a long-term increase in the low income rate for the working age population, especially single persons, and, importantly, a major decline in the low income rate for single parent families headed by women reflecting a significant rise in participation in the labour market.

There is also a big difference between LIM and the MBM when it comes to calculating the incidence of low income in Quebec. The Quebec LIM rate is 16.2% compared to a 10.9% MBM rate. The LIM rate in Quebec is 2.0 percentage points above the national LIM rate, but the Quebec MBM rate is 1.2 percentage points below the national MBM rate. This difference is likely due to low housing costs in Quebec compared to other provinces.

The key point is that the conceptual and measurement differences between LIM and the MBM result in significant differences in rates of low income for important sub populations. It is important to have both measures to account for this complexity.

It is also important to appreciate that the drivers of the LIM rate and the MBM rate are different. The LIM rate reflects changes, not just in the incomes of low income families, but also in median incomes. The LIM rate could rise if median wages began to grow after years of stagnation, and if bottom incomes did not follow suit. By contrast, the MBM rate could fall due to increased income supports which lowered the real cost of living of the poor, even if the gap between the middle and the bottom were to grow. Both measures should register major changes in the labour market and in income transfer programs.

By way of conclusion, the LIM and the MBM are conceptually different measures, both of which provide useful and important information for analysts and policy makers. We need both to get a handle on overall low incomes and trends in different populations.

Budget Fails to Crack Down on Private Corp Tax Shelter

The federal Budget changed the rules a bit re the taxation of passive investment income in private corporations, but falls well short of what was promised in terms of extra revenues and more tax fairness. The “small business” lobby helped the wealthy big time.

http://www.broadbentinstitute.ca/andrew_ajackson/wealthy_get_off_lightly_from_budget_2018_changes_to_the_private_corporation_rules