Main menu:

Posts by Author

History of RPE Thought

Posts by Tag

RSS New from the CCPA

Progressive Bloggers

Meta

Recent Blog Posts

Recent Blog Comments

The Progressive Economics Forum

Homelessness in Canada’s North

Over at the blog of Northern Public Affairs, I’ve written a post titled “Ten Things to Know About Homelessness in Canada’s North.”

Topics covered in the post include the high cost of construction in many parts of the North, the relatively high costs of operating housing in the North, and declining federal funding for social housing in the North.

The full post can be found here.

Will Oil & Potash Put SK Back in Black?

The Sask. Party government pulled out all the stops yesterday to report an ostensibly balanced budget, quite possibly the last one before next spring’s provincial election.

Revenue Assumptions

The drop in oil prices is a huge fiscal blow to Saskatchewan, and one of the ways the government projects continued balanced budgets is by assuming a rebound in oil prices. Perhaps more significantly, it assumes no corresponding rebound in the Canada-US exchange rate this coming fiscal year:

WTI Oil E-Rate
Today $43.88 78.58
2015-16 $57.15 79.16
2016-17 $69.50 81.38
2017-18 $79.00 82.88
2018-19 $85.75 84.25

Source: Provincial Budget, page 50.

Historically, there has been a very close correlation between oil prices and the exchange rate. Yet the Saskatchewan government is assuming that, by 2018-19, the price of oil will recover three-quarters of the way to $100 per barrel while the exchange rate will recover only about one-quarter of the way to parity. Read more »

Primer on Investor-State Dispute Settlement

In light of the latest NAFTA Chapter 11 decision to go against Canada, I was asked to put together some background notes for our Unifor leadership on this bizarre quasi-judicial kangaroo courtsystem.  Here they are, in case they are useful for anyone else getting up to speed on the whole investor-state dispute system.

Some very good and more detailed resources on the subject include:

The latest update from Scott Sinclair at the CCPA, who has painstakingly catalogued all the NAFTA Chapter 11 claims, and documented that Canada definitely hold the “most sued” award.

An interesting report from UNCTAD (referenced below) which highlights the worldwide nature of ISDS provisions, the accelerating pace of claims launched, and the frequency of successful claims.

Here are the briefing notes: Read more »

ROCHON on: A tale of two economies? Making sense of recent US and Canadian labour market data

Louis-Philippe ROCHON

Associate Professor, Laurentian University

Co-Editor, Review of Keynesian Economics

Follow him on Twitter @Lprochon

 

With data on the performance of Canada’s labour market released today, many economists and pundits on both sides of the 49th parallel are arguing that what seems to be emerging is two very clear and different paths for the US and Canadian economies. But that interpretation is not exactly correct.

Indeed, the US economy seems to be outperforming expectations, according to labour market data released last week, according to which the labour market is showing continued strong signs of life. In February alone, the US economy added more than 295,000 jobs, making it the 12th month in a row where monthly job creation is at least 200,000.That seems quite remarkable, especially since job creation is widespread across all sectors and demographics, suggesting a firmly-rooted recovery. Moreover the unemployment rate has shrunk to 5.5%, which is where it stood in May 2008. Finally, as the Secretary of Labor, Thomas E. Perez, boasted last week, February marks the first time in more than 3 decades, unemployment fell in all 50 states.

What more could you say? Apparently, the US is on course for a strong growth spurt, fuelling fear of inflation, which may convince the Federal Reserve to raise interest rates sooner than expected.

But we mustn’t believe everything the man behind the curtain is saying. As always, statistics can be used to spin any good story. A closer look reveals a somewhat different story, and in fact, a story that is much closer to our own. In the end, both the US and Canadian labour markets are much closer in character than most pundits would care to admit.

Since unemployment rates by themselves do not tell the whole story, we must dig deeper to get a fuller story.

First, there is still too much part-time employment, and the current employment ratio (the ratio of employed individual to the overall labour population) is still low, at 59.3%, a full 3 points below where it stood before the recession (labour participation rate sits at a low of 62.8%). This means that there is still an important number of workers who still desire full time jobs but just can’t get them, and left the labour market discouraged.

As American economist Thomas Palley wrote recently (see here), close to 22 million American workers are still looking to work more. Clear evidence, he says, that the US is still far away from full employment. In fact, Bucknell University professor Matias Vernengo, argues (see here) that if participation rates were at the same level today than at the end of the Clinton boom years (67%), unemployment rate today in the US would be close to 12% and not 5.5% Now that’s a difference story indeed.

And then there is wage growth, which remains relatively weak. In fact, wage increases have averaged 0.01%, well below January’s 0.5% gain. So wage gains may in fact be slowing down. More importantly, February’s paltry wage gain is still way below productivity gains, which means there is no threat of inflation any time soon or on the horizon.

This brings us to economic policy. It is now widely expected that the US Federal Reserve will begin raising interest rates, and possibly as soon as June if not earlier. But would this increase be justified.

Given the relatively weak labour market still, and the lack of any inflationary pressure (some pundits see the inflation threat everywhere), a rate hike now would seem to be premature.

All this brings us back to Canada.

Recall that in January, while labour markets created more than 35,000 jobs (although I expect those numbers to be revised downward), these were all part-time and self-employment, thereby emphasizing the rather precarious nature of Canadian labour market. This followed a December where the economy actually shed jobs.

The latest job numbers for February are far from encouraging. In February, the Canadian economy again shed jobs, albeit less (1,000), but the unemployment rate increased back up to 6.8% from 6.6%. As I said before, we are heading in the wrong direction.

But there is more. I calculated the real rate of unemployment. If the labour force participation in Canada were at the same level as at the beginning of the crisis, then Canada’s real unemployment rate would be closer to 9% today.

This is as far away from full employment as we can get.

It is becoming overwhelmingly clear that both economies are suffering considerably, and both economies are still far from a sustained recovery, although Canada’s economy is doing far worse.

The Federal Reserve should not be raising rates. This is not the time. In both countries, what we need is fiscal stimulus and massive investments in public infrastructure. Unfortunately, ideological and political nearsightedness will prevent that from happening, virtually guaranteeing a prolonged period of misery.

Deficit Déjà Voodoo again in New Brunswick

The Fredericton Daily Gleaner published an op-ed I wrote about how the province doesn’t have a structural deficit, despite the government claiming it does.  The commentary piece is behind a pay wall so I’ve copied it below.

Last month, CUPE New Brunswick also published a paper I wrote on this issue, Deficit Déjà Voodoo: is New Brunswick really headed off the fiscal cliff?  It and a presentation I gave, another blog post and other background material are also available through this post.

——————————————-

Want to know a secret? There is no structural deficit 

By Toby Sanger

The New Brunswick government is engaged in extensive province-wide consultations focused on finding $500 to $600 million in spending cuts or increased revenues to address what it claims is “a serious fiscal challenge.” It says this is necessary because the province has a “$400 million structural deficit” has “been spending beyond its means,” and additional funds are needed for other initiatives.

There’s just one big problem with this exercise: the province doesn’t have a “structural deficit”. It’s not that the emperor has no clothes: it’s that he’s hiding them and pleading poverty instead.

Read more »

THE EURO, THE DRACHMA AND GREECE: limited options in an impossible situation

Jean-Francois Ponsot

Associate Professor of Economics, Université de Grenoble (France)

and

Louis-Philippe Rochon

Associate Professor of Economics, Laurentian University (Canada)

Co-Editor, Review of Keynesian Economics

___________________

The final agreement between Greece and the Eurogroup is a disappointment for anyone who held high hopes that Greece would have taken away more than a mere extension to the existing deal.

In the end, Greece gained very little and the continued austerity will do very little to close the growth gap. It is difficult to see anything short of a total capitulation. Perhaps the view Greece could walk out with a victory was naïve in light of the formidable power of the Eurogroup and its financial allies.

How could this have happened?

Greece’s biggest mistake in entering these negotiations was to state at the very beginning of the negotiations that under no circumstances was it prepared to leave the Euro. Indeed, Syriza campaigned on putting an end to austerity without abandoning the European currency. This was a mistake. With so much at stake, you cannot enter such high-level negotiations with your opponents already knowing the outcome of the negotiations. This is simply a fundamental fact of politics 101. And with time running out for Greece, the Eurogroup only had to wait it out. With the financial siege firmly established, Greece had no chance.

Yet, refusal to consider leaving the Euro is at best a second-best solution, at worst an agreement to continue deflationary policies. Indeed, critical economists have been arguing even before the creation of the Euro in 1999 that it was an illegitimate currency and was doomed to failure.

The origins of the Euro can be found in the Optimum Currency Area literature, defended by many economists and pioneered notably by Canadian economist and Nobel Laureate, Robert Mundell. Yet, this view is now being vigorously contested today as it is betrayed by the facts of experience, as the on-going crisis has pointedly shown. According to the endogenous OCA, the creation of a unique currency should have resulted in a reduction of economic disparities between member countries.

Yet, this never materialized. In fact, we were told that a common currency would lead to an increase in intrazone trade by as much as 50%, when in reality they rose by a mere 4%.

The immediate issue at hand, however, is not whether the Euro zone constitutes an OCA, but rather to evaluate objectively the original conditions surrounding the creation of the Euro. We can identify two important ones. First, there is the thorny issue of fiscal transfers between member countries in order to deal with shocks and intrazone imbalances, and second, there is the issue of having a common monetary policy alongside a range of fiscal policies, particular to the each member countries.

It is in this sense that the Euro remains an incomplete currency lacking the necessary institutions to support its creation. A monetary union cannot operate without a political union, by which we mean a minimum degree of fiscal federalism.

In light of this lack of completeness, the Euro has exacerbated existing macroeconomic disparities between member countries, who have lost their ability to adequately deal with economic downturns. Indeed they have no exchange rate, no monetary policy, and especially no fiscal policy: since the adoption of the Fiscal Pact, member countries’ fiscal budgets are now under the strict supervision of Brussels.

But the heart of the problem is not only to solve the immediate problems of Greece’s debt and the consequences of austerity, but also to address and hopefully solve the Euro architecture.

At this stage, we believe there are only two possibilities, each fraught with obstacles and consequences that cannot be taken lightly: either complete the Euro project or leave the Euro. Anything short of either solution, like maintaining the status quo, will simply perpetuate the existing deflationary problems.

The first option of completing Euro’s architecture would entail 2 important changes: i) enter into a full union by adopting a common fiscal policy and a common, synchronized tax system; ii) adopt a Canadian-style transfer payment system that redistributes fiscal revenues from ‘rich’ to ‘poor’ countries.

This option, however, remains at best illusive. From a political perspective, it is virtually impossible. Fiscal federalism implies paying European taxes (as opposed to national taxes) – something Europeans do not want, and then redistributing them, which implies financial solidarity, which Europeans want even less. Yet, the obvious problem is that Germans do not want to see their tax money going to the Greeks or to the Portuguese, who they see as the authors of their own misfortunes.

The second option favours a negotiated exit from the Euro for Greece and other countries facing insurmountable adjustments imposed by austerity, although no less fraught with its own problems and uncertainties.

Unfortunately, this topic has become taboo, especially in Europe, even among critical thinkers. Yet, it strikes us as odd that a great many critical economists and intellectuals, who once railed against common currencies, are now shunning discussion over a Euro exit. Now, they argue that abandoning the Euro would be too painful for any country, let alone Greece, and that it would be best to continue using the Euro, even if this means an important loss of fiscal and monetary sovereignty.

If there is a silver lining here, it is that this recent deal is only in effect for 4 months, during which time Greece will have the opportunity to recover and regroup. But in order to win the next round of negotiations, Greece must either push for political union and the creation of the appropriate institutions (which we believe is a lost cause), or put a grexit on the table. That will be the only way Greece will gain leverage entering these intense negotiations. In doing so, however, Greece must be prepared to leave the Euro.

Of course, it will not. And now the rest of Europe knows this, and any demands by Greece will be seen by the rest of Europe as a bluff.  For instance, Finance Minister Varoufakis now says that if Europe is not prepared to accept it s reforms, it will have no choice but to call fresh elections or propose a referendum (it is not clear what the referendum would be on). Unfortunately, it is difficult to take these as serious given Syriza’s tendency to bluff and capitulate.

Undoubtedly, there are many challenges and uncertainties in pursuing this strategy, many which go beyond economics. Among the economic challenges, Greece does not have a well-developed export sector (except for tourism), which means any devaluation, voluntary or imposed by outside speculators, would have a very limited impact on growth. There would also be the challenges associated with Greek banks, with the technicalities of introducing a new currency, the cost of issuing new bonds, the needed fiscal and taxation reforms, and many more. Undoubtedly, this scenario may prove too overwhelming to consider, and may justify in large part the desire to stay within a flawed system.

There are also geo-political issues to consider to take into consideration: if Greece left the Euro it would have to leave the EU and would lost considerable benefits from belonging to it. With its proximity to the Middle East, its continued tension with Turkey, there is certainly much to consider.

Despite these challenges and the intimidating political situation, a grexit must be on the table in 4 months. In a recent blog, former Finance Minister, Philippos Sachinidis, recently stated: “Recession in Europe needs to be fought with a federal Keynesian policy, involving a new system of fiscal transfers followed by a consumption increase in the Northern countries along with Europe-wide projects together.” He is correct. The problem, however, is that a Keynesian policy cannot be followed under the Euro’s current architecture, which was precisely the objective of the Euro’s creators, and why Germany and other countries resist any changes. It is in the sense that the Euro is an ideological currency. It must be abandoned for the sake of Europe’s future.

But there are a number of sensible proposals floating around that can make for a smoother transition to sovereignty. One solution is the simultaneous issue of an electronic currency, as was recently done in Ecuador. The central bank introduced a virtual currency tied with the use of smartphones that replaces paper money. Ecuador is a fully dollarized economy that cannot print its own US dollars, has no exchange rate, no independent monetary policy and only a limited use of fiscal policy, not unlike Greece.

 

Why are women leaving Canada’s workforce?

I started producing an e-weekly earlier this year, Eye on the Economy: making sense of recent economic events, as a more regularly complement to the quarterly Economy at Work I also produce.

Each issue contains a main commentary/analysis piece on a topical issue and also a curated round up with about five shorter briefs.  In an age of info overload and never ending tweets, it’s meant to provide a decent summary of relevant economic events.

The main piece from a few weeks ago, on “Why are women leaving Canada’s workforce?” is relevant with international women’s day this weekend.  For me, it’s also a bit of a puzzle — and I’d appreciate comments on this from readers of this blog.

If you’re interested, please sign up here to receive it.  I’ll try and repost relevant here, but I’ve been lousy at doing it so far and can’t guarantee I’ll have the time!

———————————————–

Why are women leaving Canada’s workforce?

Women left Canada’s labour force in record numbers last year. Who are they and why did they leave?

Over 80,000 women left Canada’s labour force in 2014, bringing their labour force participation rate down to 61.6 per cent from 62.2 per cent in 2013 (all figures annual averages). This is the lowest rate since 2002, and a reversal of decades of gradually growing gender equality through women’s participation in the workforce.

Historical LF partipication rates

If women’s participation rates hadn’t declined in 2014, the unemployment rate for women unemployment rate would have risen from 6.4 to 7.3 per cent. This would have been the highest annual rate in 15 years and even higher than it was during the 2009-10 recession years.  While there was a decline in women’s labour force participation immediately following the recession of the early 1990s, the decline last year comes five years after the recession was supposedly over.

Read more »

Thinking Through the Fall-Out of Lower Oil Prices

Canada’s economic and fiscal debates in recent months have been dominated by the possible impacts of the sudden fall in oil prices since last autumn on growth, employment, and fiscal balances.  Finance Minister Joe Oliver delayed the budget, the Bank of Canada shocked markets with a rate cut, and Alberta Premier Jim Prentice is now promising a shock-and-awe austerity budget unlike any that province has experienced.  And these are just the first-round policy responses.  More drama surely lies ahead. Read more »

Doubling Contributions To The Tax Free Savings Account: Even Nastier Than Income Splitting

The Harper government gives five reasons why Canadians ought to be happy with its proposal to double the maximum contribution to the Tax-Free Savings Account. Examine each of its points more closely, however, and it’s clear that the TFSA carries far higher risks than rewards — for individual Canadians  as well as for the economy as a whole.

Let’s unpack the government’s arguments one by one:

Read more »

Grocery Wars: Lessons from Canada’s Changing Retail Landscape

As Target Canada tumbled into bankruptcy, Loblaw announced that its fourth-quarter profits more than doubled. What can be learned from this tale of two retailers?

The main reason for Loblaw’s surge was its acquisition of Shoppers Drug Mart last March, which turned it into Canada’s largest grocer and pharmacy chain.  Shoppers contributed $3 billion to Loblaw’s $11.4 billion take in sales, a 50% jump. Profits more than doubled from the previous year as Loblaw also saw cost savings from the merger. The irony behind this success story is that it was likely Target’s arrival on the retail landscape  that forced Loblaw to step up their game.

Mergers and acquisitions have become a quick way to grow the bottom line for business. But larger scale isn’t the whole explanation in this case. Loblaw also saw strong growth in same-store sales compared to a year ago, a critical metric for retailers who need to show shareholders they’re building business, not coasting.  Grocery sales boosted revenues, but a big part of that was higher prices, not higher volumes.

How will that extra cash get spent? There’s been speculation that Loblaw is eying some of Target 133 idled locations.   But their CEO, Galen Weston, doesn’t sound too interested, saying it might choose a handful of locations that are “complimentary” to their current holdings.

Frankly Loblaw’s expansion plans aren’t like Target’s. It doesn’t need more stores.  It already has 2,300 outlets across Canada.  Rather, its growth path is following the same formula as Walmart: a wider range of products packed into the aisles at existing locations. Read more »

Harper Conservatives vs the IMF on Deficits

Here is an extract from my column on balanced budgets in the Globe ROB today.

“When it comes to balancing the books, the Harper government is seemingly more Catholic than the Pope. Even the International Monetary Fund (IMF), hardly big fans of high government spending, argue in their latest Country Report released in January that the federal government should ease up on fiscal restraint in the near term to the tune of 0.3% of GDP. They say this should fund “targeted measures to support growth.”

In effect, the IMF have said that there is no need to quickly balance the federal budget given that growth will be hit hard by the slump in oil prices. They have not said, as has Prime Minister Harper, that we must fall into a recession before we should run a deficit”

Here are the relevant extracts from the report,  to be found here.

21. Federal authorities should consider adopting a neutral stance going forward. Given the strong deficit reduction achieved in recent years (about 2 percent of GDP cumulative improvement in structural balances in 2011–14), the federal authorities should consider a slower pace of adjustment after 2014. Adopting a cyclically-neutral stance would imply a small fiscal easing in the near term but still be consistent with achieving their low public debt objectives by 2021. As the economy gradually approaches potential, this would still allow automatic stabilizers to operate fully if growth were to weaken should further downside risks materialize. Moreover, in terms of the policy mix, a neutral fiscal stance would help monetary policy to rebuild policy space further as the recovery proceeds.
22. Available fiscal resources could be used for targeted growth-friendly measures. Against the backdrop of lackluster business investment (despite very low interest rates) and productivity, such measures could focus on providing further support for R&D, SMEs, venture capital, and strategic infrastructure projects, with little risk of crowding out private investment. Reducing federal taxes could provide more space to raise revenue at the provincial level, given that federal and provincial governments ’co-occupy’ the same tax base.
Relative to current policies, maintaining a cyclically-adjusted primary surplus (at the federal level) broadly constant at its 2014 level would amount to some 0.3 percent of GDP fiscal impulse over 2015–17, but would still be consistent with the authorities’ debt reduction target of 25 percent debt-to-GDP ratio by 2021.

Low-carbon urban infrastructure: a view from Vancouver

I have a new case study (full pdfsummary article from the publishers) out as part of the Economists for Equity and Environment‘s Future Economy Initiative. I look at the City of Vancouver’s Neighbourhood Energy Utility (NEU), a low-carbon district energy system that hits a sweet spot of clean energy, local control, and stable prices at competitive rates.

The NEU arose as part of a vision for redevelopment of former industrial land into a mixed-use community in the Southeast False Creek area of Vancouver. The first phase included construction of the False Creek Energy Centre and service to the Athletes’ Village for the 2010 Winter Olympic Games.

At the core of NEU operations is a hybrid system of sewage heat recovery (SHR) backed up by natural gas boilers to deliver thermal energy to buildings in the service area. The NEU targets a key GHG mitigation opportunity in buildings through shifting away from fossil fuels for space and water heating.

While the system is not fossil fuel free (due to the natural gas component), GHG emissions were reduced by approximately 56-77% in 2012 and 44-61% in 2013 relative to development that did not include the NEU. This decline in performance between 2012 and 2013 is due to new buildings being added to the existing system, which increase the system’s reliance on natural gas. Planned new SHR capacity is added in 2018. Future mitigation opportunities for the NEU could include biomass as a substitute for natural gas.

Capital costs were supported by a federal grant, low-interest loans and self-financing from the City. The NEU’s rates are modeled on a traditional regulated utility, with revenues obtained entirely from its customer base. Because the eventual customer base will be built out over more than a decade, the city implemented a rate structure that under-recovers capital costs, running deficits in the early years. Cost competitiveness is a key objective, and the NEU rate structure compares favourably to other DE systems and energy providers.

The NEU is a modern example of public sector innovation. It challenges a paradigm of centralized energy distribution, and links and expands municipal services in a novel way. To reduce risk and achieve economies of scale, the City requires mandatory connection of all buildings in the service area.

As a highly capital-intensive utility, most of the job creation occurs during the construction phase, which involved approximately 50 FTE jobs over a three-year period. Ongoing expansion of the network to new buildings ensures continuing construction work. In NEU operations, there are 3.5 FTE jobs, and these are highly-skilled engineering jobs. While these numbers are relatively small, it represents only 24 buildings and a very small percentage of total energy demand in the city.

The NEU has environmental and economic attributes that could be replicated in other cities (and it is already having an influence in other parts of Metro Vancouver). A key challenge is upfront capital costs, which could be ameliorated by senior government support and through the development of green bonds. But the NEU case also shows how a public utility model can be developed for low-carbon district energy, even in the absence of subsidies.

ROCHON On Greece once More

LOUIS-PHILIPPE ROCHON

Associate Professor, Laurentian University

Co-editor, Review of Keynesian Economics

Follow him on Twitter @Lprochon

________________________

As I have said before (see here) and will say again: any solution to Greek’s tragedy, which involves keeping the Euro as a currency is a second-best solution, unless the appropriate institutional changes are adopted. Anything short of this will simply maintain the Euro straightjacket and perpetuate the policies of deflation. Austerity has proven a disastrous and unsustainable policy that has revealed the weaknesses of the Euro. Indeed, without political union, the Euro remains an incomplete (and illegitimate) currency, and the sooner it is replaced with a set of national currencies, the better it is for all countries in Europe.

Interestingly enough, there is virtual unanimity among heterodox economists about the shortcomings of the Euro, yet a deep division exists on whether Greece should leave the Euro or push for institutional reforms, like political union.

Of course, a grexit would carry important short-run costs that cannot be minimized (sudden and large devaluation that can lead to imported inflation, among other problems; and since Greece is not an exporting country, devaluation will not help that much). No one, including myself, is denying the potential destabilizing effects of abandoning the Euro and of leaving the EU. But since the possibility of political union is nil under current governments, the only possible solutions are the status quo or the abandonment of the Euro.

Hopefully, a grexit would be accompanied by a number of urgently-needed policies such as capital controls for instance, and strict limits on bank withdrawals in the period in between the transition from the Euro to the drachma (a number of other measures would also be necessary). It is impossible to estimate how long this transition period would last, but I maintain that the long run benefits of gaining fiscal and monetary sovereignty outweigh these short run costs.

But the current Syriza leadership has stated quite unequivocally that abandoning the Euro is not a policy they are considering, largely I presume, for political reasons as the Greek population heavily favours remaining within the EU and the Eurozone. Of course, this does not negate the possibility that Greece will be pushed out. This is becoming I think an increasingly real possibility. L’enfant terrible of Europe is being seen increasingly not as much as a liability, but as a nuisance, and some are arguing that they would rather be rid of it now and suffer the short run consequences than to keep Greece and try to make it happy. I am convinced, although I have no real proof, that contingency plans have already been drummed up outlining possible scenarios and strategies in case the inevitable becomes reality.

Of course, one cannot but shake his head at the irony: Greece has the first democratically-elected mandate to put an end to austerity, but such a will is being tested and challenged by the political and ideological elites who make a mockery of democracy.

But for now, let us put these scenarios aside. And for the sake of argument, let us take a grexit off the table and consider Greece’s second-best solution for its debt woes.

To get a good understanding of the current desperation, consider some basic facts: the Greek economy now stands 30% below pre-crisis levels; unemployment has skyrocketed to over 25% (more than 60% for youth unemployment), and Greek debt is now more than 170% of current GDP.

What comes immediately to mind is that for now, Greece needs some much-needed breathing room to try to get its economy back on track. To do so, and by keeping its international commitments, it needs to put its debt problems on hold, or what has been called a burdge. It has become clear that a debt write off or any type of haircut is now officially off the table as well. So Greece needs to deal with its entire debt.

A number of possible solutions exist but they cannot all be discussed in such a short space, so I will concentrate on what I consider perhaps two of the most promising ones. First, Rob Parenteau has proposed what is called “tax anticipation notes”, which essentially allows a government to deficit spend and issue notes (tax credits) that guarantee repayment once the economy recovers (see here).

This is an interesting idea that already exists in some US states, but I fear the idea would be too foreign to be taken seriously in Europe.

The other proposal, backed by Stephany Griffith Jones, among others, is to tie Greece’s debt repayment (interest plus amortization) to the (real) growth of its economy, and to transform its existing debt into GDP-linked bonds. This would act in a sense “like a hair cut”, without really being one.

Such a proposal has considerable merit, and would tie the repayment to the growth of Greece’s real economy, thereby making such payments more manageable. Debt repayment would therefore vary according to GDP performance. To be clear, this is not a haircut, but haircut-like: Greece would eventually honour all its debt, but would do so on much easier terms.

There are a number of advantages for Greece, such as the counter-cyclical nature of this policy, allowing Greece to reduce its repayment when the economy slows or goes into recession. This would therefore give Greece more room to deficit-spend (European rules allowing) and reduce the scourge of austerity.

It would also stabilize the debt by lowering the possibility of a Greek default.

Of course, such a policy would have to be tied to much-needed reforms on the ability of Greece to raise revenues in the future, and therefore cut on tax evasion and fraud. International investors would have to have the assurances that Greece is serious about raising revenues. This should not be difficult to adopt, although implementation is another issue.

 Regardless of the solution chosen, the debt imbroglio is only the first step toward a full Greek recovery. Greece then has to wage an all-out war on growth, and get its economy back on some firmer ground. At this point, it will take considerable time and energy, and nothing short of a New Deal (see Theodore Koutsobinas’s blog here).

Of course, there remains the question who how Greece will pay for some a New Deal. But if GDP-linked bonds were adopted, this would precisely free considerable fiscal room and allow Greece to pursue expansionary fiscal policy that would hopefully rebuild the Greek economy. Greece would have to invest in its infrastructure, in education, in its youth, and more.

But again, this strategy simply brings to the fore the Euro carcan, as countries cannot deficit spend their way out of recession, no matter how severe.

In the end, the democratic expression of the people cannot be thwarted. Anti-austerity feelings are running high, and Europe must be careful on how it deals with Greece. Because we risk starting all over again in Spain, with the Podermos Party, which are now leading in the polls in that country. Any attempts at isolating democracy in Greece will only fuel the desire for change in Spain.

Will Nova Scotia Implement a Carbon Tax?

There is some discussion in Nova Scotia about the possibility of the government introducing a carbon tax in the next budget. In this blog post I will introduce the context within which these discussions are taking place, and make reference to other blog posts in this forum that provide insights into how the province might best approach a carbon tax policy.

First, I believe Nova Scotia’s low-carbon transition does not receive the attention it deserves. The province is expected to generate 25% of its electricity from renewables in 2015, and has a target of 40% by 2020 (largely due to plans to import hydroelectricity from Newfoundland and Labrador). The province has become a leader in energy efficiency, led by Canada’s only non-profit “energy efficiency utility”. It has also introduced hard caps on GHG emissions from the electricity sector. Much is made of Ontario’s dramatic reductions from the phase-out of coal-fired electricity, but Nova Scotia has made similar percentage reductions since 2005. Nova Scotia’s emissions reductions are driven by policies that can put the province on the path towards even lower emissions. (In contrast, New Brunswick’s large decrease seems to be mostly due to higher oil prices reducing electricity exports from an oil-fired power plant). (Of course I have to admit my bias here, since I was involved in NS energy policy during the introduction of many of these policies, as a consultant or environmental advocate).

Untitled3

 

 

 

 

 

 

NS Electricity Mix

 

 

 

 

 

 

 

 

 

Nova Scotia’s example is important to the rest of Canada because it is a carbon-intensive province, with an electricity system based on coal, undergoing a significant energy transition. Many of the other progressive climate policies in Canada come from the less carbon-intensive provinces of Ontario, Québec, British Columbia, and Manitoba. If Nova Scotia were to implement a carbon tax it would fit nicely with its existing policy mix and contribute to a real transition away from fossil fuels towards a more efficient and clean energy system.

The idea of a carbon tax came from a report written by former Ontario cabinet minister, and new Nova Scotia resident, Laurel Broten. Her review of the tax system recommends a carbon tax that is “revenue-neutral”, with revenue earmarked for low-income support as well as corporate and personal income tax cuts.

Broten points towards the success of BC’s carbon tax. As demonstrated by Sustainable Prosperity, BC’s carbon tax has decreased emissions. The predictions that the tax would harm the BC economy have also not come true. BC’s GDP growth, relative to the rest of Canada, has been largely unaffected by the tax. The report also notes that recycling the revenues of the BC carbon tax towards tax cuts means that BC has some of the country’s lowest personal income and corporate taxes.

While one cannot claim that BC’s carbon tax has harmed the economy, nor is it possible to claim that these lower tax rates have helped it. As noted by Jim Stanford’s recent blog post, BC is not a bastion of economic prosperity (measured by GDP per capita) or social welfare (the province has below average per capita spending on health, education, and social assistance).

In Nova Scotia, the larger economic context is important to consider in the carbon tax discussions. A year ago a “Commission on Building Our New Economy” (also called the Ivany Commission after its chair) authored a report called “Now or Never”. The report sounded an alarm bell on the province’s economic situation and called for a “province-building” project. The Commission report cast a wide net and could be used to justify anything. The commission supported the province’s continued transition towards a green economy. Some in the province have used the Commission’s message to call for government downsizing, austerity, and tax cuts. Hence, the interest in the “revenue neutral” carbon tax seems to be linked to some people’s interpretation of the Commission’s message.

Nova Scotians would do well to consider Marc Lee’s case against a revenue-neutral carbon tax. Lee notes that there is little evidence that personal income tax reductions benefit the economy by increasing the incentive to work. Even in neoclassical theory the economic impact of a tax cut is ambiguous because the increase in real personal income could make people engage in more leisure. Practically, there are a number of structural issues (like fixed work hours) that make it hard for people to increase their hours of work on the margin, as suggested by neoclassical theory.

From Iglika Ivanova’s recent post we can see that BC’s tax cuts have not resulted in better labour market performance or a quicker recovery from the recession. BC has not returned to pre-recession employment levels. In addition, total hours worked are now lower in BC than they were in 2008 (the year the BC carbon tax shift was introduced). Other provinces have seen a larger relative increase in hours worked since 2008. Clearly something other than income tax levels, and the trade-off between work and leisure is influencing the job market.

In Atlantic Canada there is the traditional issue of people “Going down the Road” to find work in other parts of Canada. But this is not because of a lack of incentives to work instead of engaging in leisure. It is because of a lack of job opportunities.

What about corporate taxes? These tax reductions seem to only be contributing to cash hoarding by corporations. They are not encouraging investment (See Erin Weir). An industrial innovation strategy reliant on tax incentives seems doomed to fail.

So here are some takeaway lessons as Nova Scotia considers implementing a carbon tax. First, such a tax will help decrease GHG emissions and hopefully complement other climate change and energy policies in the province. Second, if what is really needed is a “province building” project, it makes sense for Nova Scotia citizens to have a fuller discussion on how the carbon tax revenue could be used for this purpose. For instance, the tax revenues could be used in a targeted way to facilitate an industrial transformation towards a green economy, to increase community innovation and economic development initiatives, to really tackle energy poverty, and to enhance energy security by accelerating the move away from imported fossil fuels with more energy efficiency and renewable energy.

Stay tuned to see what happens in Nova Scotia.

3 worrisome facts about BC’s job market on the eve of Budget 2015

2015 marks the sixth year of BC’s recovery from the recession. But it’s been a slow and largely jobless recovery in BC.

1. BC needs 93,000 more jobs to return to our pre-recession employment rate (the proportion of working age British Columbians who have jobs).

BC job market_Small

Only 71.2% of working age British Columbians have jobs today. This is practically the same share of workers with jobs as when the BC Jobs Plan was launched, and has barely improved since the recession. In other words, the new jobs created in BC since 2009 have just kept up with population growth without replacing (or recovering) the jobs lost during the recession. Read more »

Confusing “Deficit Elimination” with “Prosperity”

The banner headline across the top of the front page of the national Globe and Mail edition caught my eye Saturday morning: “How B.C. became a ‘have’ province.”  Wow, I thought to myself, that is quite something (and without a single LNG plant yet visible on the horizon!).  So I prepared to sit down with my coffee to give this startling news a good read.  Read more »

G20 meeting of world finance ministers too little too late

Posted earlier as an opinion piece for CBC.  See original post here (this post slightly modified from original)

By Louis-Philippe Rochon

Follow him on Twitter @Lprochon

 

Much was at stake earlier this week when finance ministers from G20 countries met in Istanbul to discuss Greece and the state of the world economy in light of recent downgrades in world growth expectations. But did they agree to too little, too late?

There is now no doubt that the world economy, not just Canada’s, has slow downed considerably and will slow down even more unless appropriate policies are adopted soon. To date, some eight central banks, including Canada’s, have either lowered their interest rates or adopted some unconventional policy in an effort to boost their fortunes at home.

In a communiqué following the meeting, the finance ministers stated that “growth in the global economy remains uneven and although the recovery is in progress, it is slow.”

This echoes IMF Managing director Christine Lagarde’s statement before the meeting that “there is a lot at stake … without action, we could see the global economic supertanker continuing to be stuck in the shallow waters of sub-par growth and meager job creation.” Canada’s Finance Minister Joe Oliver spoke of “kickstarting the global economy.”

The finance ministers supported the recent actions of some central banks, noting that monetary accommodation was warranted.

Yet, the problem with the use of continued monetary policy at such historically low interest rates is that reducing them even further is more like pushing on a string. It will do nothing or very little to boost domestic economies.

The reason more monetary stimulus won’t work is that investment does not react that well to changes in interest rates alone. The continuing disappointment of private sector investment has nothing to do with interest rates, but it is due to the overall pessimistic mood or the uncertainty over expectations of growth next year. Since these expectations are low, firms see no value in taking on new investment, no matter how low interest rates are. So lowering them even further will do absolutely nothing.

It’s time to recognize this fact, put monetary policy aside, and return to expansionary fiscal policy.

In a way, the G20 meeting recognized this: “Fiscal policy has an essential role in both building confidence and sustaining domestic demand.” How right they are.  Indeed, more fiscal stimulus pumps up aggregate demand and reduces this pessimism that is holding back investment.

So why are governments not spending more?

After all, we know fiscal policy works. In 2009, as the crisis developed, countries agreed to an international and coordinated assault on aggregate demand, and adopted large expansionary fiscal policies to boost the economy. This was the right thing to do. In a very short time, output stopped falling and actually started growing.

So why not do it again?

There are two obstacles:

  1. Countries have become convinced that deficits and debt are not politically desirable, although they are desirable from an economic perspective. In other words, it’s a tough sale politically;
  2. Many governments are refusing to acknowledge the severity of the downturn.

Yet it is severe, and nowhere is this truer than in Canada. In a recent speech, Carolyn Wilkins, senior deputy governor of the Bank of Canada, acknowledged that at this stage of the “recovery,” Canada’s labour market is considerably underperforming, and unemployed workers remain unemployed on average much longer than normal, or at least much longer than in previous recessions.

So with all the evidence mounting in favour of some intervention, why is the government still refusing to spend and invest? There is little chance the government will do so in its much-delayed, upcoming federal budget. They will try best they can to deliver on their much-promised balanced budget, despite being a bad idea at the wrong time.

Seven years into this crisis, we are facing a lost decade and even more; in the end, when it’s all done, we would have lived through quite possibly a “depression” worse than the one in the 1930s, and economic historians in the future will ask why we did not do more to put an end to this scourge.

Despite all the fear-mongering out there, fiscal policy and deficits don’t lead to inflation (in fact, there is zero inflationary pressure at the moment, a fact recognized by the Bank’s Wilkins); they don’t lead to higher interest rates; deficits are not a debt we leave our children.

In Istanbul this week, there was recognition of the sad state of international economic affairs, but very little in terms of concrete policies to meet the challenges such a slowdown poses. In fact, the communiqué was rather vague when it came to policy, despite a few positive sentences. In particular, there was the recognition (finally) of the problem of growing income inequality, although I doubt very much this government will introduce any concrete policies to reduce it.

Governments around the world, still believing in austerity policies and the wisdom of expansionary fiscal contraction, have failed us miserably. The evidence is now clear: it simply does not work. Neither does monetary policy.

If this is the wisdom of our elected leaders, then I double down on my predictions for 2015 and argue that now a recession in Canada is almost certain by the end of the year.

Louis-Philippe Rochon is an associate professor of economics at Laurentian University and founding co-editor of the Review of Keynesian Economics

Rethinking social protections in the age of contractors

The job market is changing rapidly. While most workers of our parents’ generation could have reasonably expected to spend their entire working careers in permanent full-time jobs with one or two employers, today many rely on contract work or freelancing, and even regular full-time employees change jobs frequently. There are pros and cons to this shift, but one very significant problem with it is that our current approach to providing social protections in Canada and the US was designed around the old permanent employee model and does not fit the new new job market reality. Read more »

ROCHON: Greece, Syriza and the Euro

This is a guest blog post from Louis-Philippe Rochon.

Follow him on Twitter @Lprochon.

What a tumultuous few weeks we witnessed in Greece. Though the victory of Syriza was ill-received in particular in Germany and the European Central Bank, it was nonetheless a resounding victory for democracy. This victory may now spill into other countries and give much credence in particular to the Spanish Podemos party.

Moreover, recent German threats to throw Greece out of the Euro zone only further masks what is increasingly becoming evident: the Euro is a flawed and poorly designed institution that condemns Europe and her citizens to many more years of misery. The only real solution to the Euro problem is to abandon the single currency altogether.

The refusal of many European countries to deny Greece the dignity of negotiating better terms on its debt repayment only betrays history, and the generosity and good-will the world showed Germany in 1953. This continued hostility could pave the way to a grexit (‘Greek exit’ from the Euro) in light of a leaked report showing Angela Merkel’s secret (or not so secret) desire to see Greece ejected from the Euro zone altogether.

There are so many things wrong here that it is hard to know where to begin. Europe is in a real mess, and there is no way of sugar-coating it. On this, we all agree. But where we disagree is on the causes and solutions to this mess. Yet, what is even more striking is the incredible lack of understanding from the European leaders on how monetary institutions work.

The cause is now becoming increasingly clear, even to the most reluctant of skeptics: austerity has made the economic situation even more unbearable. Instead of resulting in lower debt and increased activity, it resulted in more debt and less growth.

As to a possible solution, Merkel believes Greece can be pushed out of the Euro-zone with very little damage to the rest of the Euro-member countries. Greece, on the other hand, believes Europe has invested way too much political and economic capital that it won’t follow through on its threats to eject it.

Here, I think, Merkel is right. I don’t really think it will hurt Greece in the long run, although there may be some turbulence and instability in the short run. But over time, Greece would be better off to abandon the Euro and return to the Drachma. In other words, the costs of staying with the Euro far outweight the costs of returning to the drachma. In that sense, a grexit is a sensible solution. The Euro is a sinking ship and Greece would be best advised to abandon the Euro-Titanic as fast as possible, and leave other countries to come to the same realization.

I held this position at a conference in Grenoble in May 2014, although it was far from receiving an enthusiastic ear. Recently, however, Joseph Stiglitz echoed this sentiment when he told CNBC: “If Greece leaves, I think Greece will actually do better. … There will be a period of adjustment. But Greece will start to grow,” he said. “If that happens, you are going to see Spain and Portugal, they’ve been giving us this toxic medicine and there’s an alternative course.”

Abandoning the euro is only one possible solution, of course, as there are two others:

1) If Europe chooses to keep the Euro, then there must be important institutional changes, starting with moving toward greater political union. The problem with this solution is that it very clearly rejected by Germany, who does not want to share her wealth with the poorer countries, which they see as the authors of their own misery.

2) The status quo: Europe maintains the Euro and rejects political union.

The first solution, although certainly the best of all three, is politically impossible, and a non-starter. There is no great desire to see a political union. Given this, the real choice is simply to either stay with the status quo with continued austerity and deflationary policies, or leave.

For Greece, leaving the Euro is the right decision although Greeks have made clear this is not a possibility, but it would nevertheless be the right move. And it would have the following advantages.

1) Greece would gain back its monetary sovereignty, an indispensable policy tool. An interest rate policy of the Greeks, by the Greeks and for the Greeks that will ensure that Greece does not perish from this earth.

2) Greece would have an exchange rate all its own again, and could devalue it according to its internal needs and attempt to spur the export industry. Right now, the Euro is overvalued relative to the Greek economy, and is further hurting any possible chances of recovery.

3) With its own ability to finance its debt, Greece would be able to conduct an appropriate fiscal policy and abandon austerity measures.

The prognosis for Europe is bleak, and for Greek, the hour of reckoning is near. The continued use of the Euro, without adopting the necessary institutions like political union, is simply lunacy and proof of the power of political interest over economic necessity. Stiglitz echoed these sentiments recently: “Though intended to unite Europe, in the end the euro has divided it; and, in the absence of the political will to create the institutions that would enable a single currency to work, the damage is not being undone.”

In the end, the Euro experiment was an utter failure. The mess it has created will take years or a generation to repair. It is time to recognize this, abandon it and let sovereignty return to Europe. Greece is better off with its own currency, brave the short-run instability and power forward.

Poilievre promoted to employment minister

Jason Kenney has been promoted to Minister of National Defence, and Pierre Poilievre has been tapped to replace him at Employment and Social Development Canada.

Sigh. It seems like such a short time ago that I railed against Jason Kenney’s first tweet as Minister of ESDC. At least Kenney’s tweet had something to do with employment and jobs.

Pierre Poilievre, for those of you who do not follow Question Period, has a penchant for absurdly working government talking points into conversation. His first tweet as employment minister does just that, and foreshadows what we might expect from him over the next few months.

“My new role will allow me to advance our low-tax plan for families. Lower taxes create jobs and help families get ahead.” – @ , 9 Feb 2015.

I can see why the junior minister would want to stick to his strengths, since lowering taxes is just about the only policy where the federal conservatives have any credibility, skill, or appetite for action. But it’s probably the last thing we need a minister of employment and social development suggesting.

The Conference Board of Canada recently forecast GDP growth below 2% for 2015, and many economists think that the low price of oil will be a negative shock for Canada’s already stagnant labour market. Thousands of workers have been laid off in the retail sector beyond the 17,600 at Target, and far too many will go without any kind of safety net as they don’t qualify for Employment Insurance.

In times like these we need a national jobs & training strategy, something that Jason Kenney took seriously. I’m afraid that Pierre Poilievre’s appointment signals inaction on the employment and training front, and should be a significant cause for concern among workers.

I would add, as the incomparable Lana Payne has noted, that this shuffle is part of a decoy strategy, focusing on (in)security and downplaying the domestic economy and labour market. We know which issue Stephen Harper would rather fight the next election on.

January Job Gain Part-time, Self-employment

As usual, the monthly Labour Force Survey numbers headline seems to tell a different story than the underlying numbers. According to the LFS, Canada added 35,000 jobs in January. A statistically significant number of jobs, hurray!

But wait. Those were all part time jobs. We lost 10,000 full time jobs, and added 47,000 part-time jobs.

Oh, and they were all through self-employment. We lost nearly 6,000 jobs, but 41,000 Canadians entered the labour market through self-employment.

In fact, compared to last January, half of all employment growth was through self-employment, with an increase of over 68,000 self-employed workers. The overwhelming majority of those workers  were in the most precarious self-employment category – unincorporated with no paid help. Between January 2014 and January 2015, there was an increase of 53,500 self-employed workers who were unincorporated with no paid help. (All of this data is not seasonally adjusted).

Another sign of concern is the number of involuntary part-time workers, discouraged workers, and those waiting for jobs that start in a couple of months.

The underemployment rate has fallen by less than the unemployment rate has. This is most clearly shown by calculating the ratio of the two. Using seasonally unadjusted data, and comparing the last ten Januaries, the ratio of underemployment to unemployment is markedly higher in January 2015.

Underoverun

 

All of this points to underlying weakness in the Canadian labour market, on top of bleak prospects for the near term. The mayors are meeting in Toronto this week, and asking for stable funding to build much needed infrastructure. The weakness in the labour market is just one more reason that the federal government should listen very closely to what the mayors are asking for.

ROCHON: Harper in closet over the economy as Canada heads toward another recession

This guest blog post has been written by Louis-Philippe Rochon.

You can follow him on Twitter @Lprochon

Harper’s recent incarnation as an anti-terrorist crusader has caught many Canadians by surprise. Harper is spending considerable political energy beating the drums of war against terrorists, and introducing a far-reaching, and much condemned, bill aimed at restricting free speech, and increasing police powers. But could this move hide a more cynical purpose? Can there be an ulterior motive?

I think there is, and the reason is quite simple. It’s the economy. Seven years after the beginning of the crisis, and 4 years after the official end of the crisis, the economy is slowly (or not so slowly) heading in the wrong direction. In fact, I don’t think we can exclude the possibility of a recession late in 2015 or early 2016.

Consider the economic facts. In 2014, the Canadian economy had a rather weak year. In November, the economy actually contracted by 0.2% mainly as a result of a weak manufacturing sector. It is the economy’s worst performance in almost a year: on a year-over-year basis, growth in Canada slowed to 1.9% from 2.3% in November.

As for the labour market, unemployment is up, and job creation is down, and we are still nowhere near pre-crisis levels. In Statistics Canada’s labour market revisions last week, unemployment rate inched upward to 6.7%. Moreover, the Canadian economy in 2014 only created 121,300 jobs and not the 185,700 jobs initially reported. That’s an enormous discrepancy, a 35% discrepancy to be exact. On top of that, the economy actually shed jobs in the last 2 months. As for the labour force participation rate, it now stands 65.7% (revised down from 65.9%). Right before the crisis, it stood at roughly 67.7%. At this point in the recovery, we should be doing much better.

The recent decline of the loonie could be seen in some positive light, because it may lead to an increase in exports especially in vote rich Ontario and Quebec, but for this to occur, our trading partners’ economies must be growing at some respectful rates. And I am thinking here more of the US and China.

Everyone is predicting strong growth in the US economy in 2015, yet after growing at close to 5% in the 2nd and 3rd quarters of 2014, the US economy has slowed down to 2,6% in the 4th quarter (lower than expected); in fact the 2013 Q4 to 2014 Q4 growth rate was only 2.5%, which is less than the 3.1% recorded in 2013.   Now, just released, November’s US trade deficit is up, and there are expectations that December’s growth rate will come in below 2%.

In November, Canada’s manufacturing sector shrank by 1.9% even though our dollar was falling. This was a surprise to market observers who were expecting a slight upward bump.

And then, there is the question of our monetary policy. The Bank of Canada’s Hail Mary reduction in interest rates a few weeks ago (in an international beggar-thy-neighbour poliy, it seems) was a clear admission of the malaise creeping into the economy.

And now, the yield curve, a spectrum of yields on bonds of various maturities, has inverted. As of last week, the return on 5-year bonds fell below the overnight rate of 0.75. Now this is a big deal and it does not happen often. This is a sign that markets are factoring in another decrease in overnight rates, and reflects a general uneasiness about the direction in which the Canadian economy is going.

In fact, in some research of the US economy, it has been shown that a yield curve inversion more often than not announces a recession possibly as early as 6 to 9 months later. Yield curve inversions are usually followed by a credit crunch, where banks are more reluctant to lend, and the economy slows down. If this view holds, then we could possibly be looking at a recession in Canada anytime in between July and October – smack in the middle of a federal election campaign!

With his economic cards on the table, Harper’s hand is proving to be very weak. In order to win an election, he must create momentum, but the state of the economy won’t give him this opportunity. Note how silent the PM has been lately on the economy.

Armed with the same data, his advisers are surely telling him to avoid talking about the economy. So if you are the Prime Minister who has prided himself on strong economic policies, who has boasted his government’s record on prosperity, what can you do?

Well, the answer is simple: change the channel. In other words, redirect the debate toward something else, something that will hopefully distract the voters. But this issue must be big, something so terrible in fact that no one will even remember that the economy is heading in the wrong direction.

Enter the war on terrorism. Perfect topic. After all, who is not in favour of fighting terrorism? Harper will surely paint all those against him as terrorist sympathizers, and the opposition has fallen into the trap. And the timing could not be better: Parliament Hill in Ottawa just got attacked, and so were the offices of Charlie Hebdo in Paris. So let’s strike when the iron is hot.

Unfortunately, voters’ attention span is limited, and even the war on terrorism cannot be sustained for a whole 8 months. So expect Harper to do the next best thing: call an early election. This will serve two purposes: keep the terrorism debate alive for a much shorter time, but also avoid the unpleasant and inconvenient discussion of what is happening to the economy, and face the electorate when the economy gets too obvious that it can no longer be ignored.

It will be up to the Opposition parties to keep the economic topic alive, and Harper will try everything to avoid talking about it.

Rochon Asks: “Is the Canadian economy unraveling?”

In a recent CBC blog post, Louis-Philippe Rochon assesses the current state of the Canadian economy.

The link to the blog post is here.

Follow him on Twitter @Lprochon.

Seccareccia on Greece, Austerity and the Eurozone

Over at the blog of the Institute for New Economic Thinking, Ottawa U professor Mario Seccareccia has given an interview titled “Greece Shows the Limits of Austerity in the Eurozone.  What Now?”

The interview can be read here.

Responsibility for Housing

On Monday I gave a guest presentation to Craig Jones‘ graduate seminar class in Carleton University’s School of Social Work.  My presentation sought to answer two questions:

1. Why should government play a role in creating affordable housing?

2. Which level of government is responsible?

With those questions as a backdrop, here are 10 things one needs to know:

1. When it comes to affordable housing, the private sector alone doesn’t cut it—not by a long shot!  For it to be profitable for a for-profit developer to create rental housing in one of Canada’s major urban centres, for example, a large one-bedroom (or small two-bedroom) unit would have to fetch approximately $1,500/month in rent.  Using 30-percent-of-gross-monthly-income as an affordability benchmark, a household would have to earn $60K annually to afford such a new unit.  Admittedly, average market rent is lower than this amount—but in major urban centres, it is not much lower.  And a key advantage to presenting to students of social work is that they’re keenly aware that many households make considerably less than $60,000 annually.  Indeed, a single (employable) adult receiving social assistance in Ontario makes a mere $7,500 annually.  That is not a typo: see for yourself here.

2. “Social housing” typically involves a government subsidy that helps bridge the gap between what a low-income household can afford and what the private market requires.  This is one of the great things about social housing in Canada; it makes otherwise unaffordable housing affordable.  If all low-income persons lived in social housing, Canada wouldn’t have much of a housing problem. (Housing for low-income persons that involves a government subsidy can be owned by either a non-profit or a for-profit entity, and some policy wonks like to debate which of the two approaches is better.  I did not get into this debate in class, but have previously written about it here.)

3. Only a small percentage of low-income persons in Canada live in social housing.  Only about 5% of Canada’s total population lives in social housing (by contrast, 32% of Sweden’s population lives in social housing, while 34% of the Netherlands’ population lives in social housing).  In the City of Ottawa, families with children typically wait three years for social housing, while single adults typically wait more than five years. (Information pertaining to waiting lists across Ontario can be downloaded here.)

4. A lack of affordable housing has important implications for other spheres of social policy.  Research done in Toronto has looked at the role of housing when it comes to children in care.  Results indicate that “the state of the family’s housing was a factor in one in five cases in which a child was temporarily admitted into care. Results from the Toronto research also indicate that, in one in 10 cases, housing status delayed the return home of a child from care” (Falvo, 2012, p. 14).  Moreover, when people become homeless, they suffer serious health problems and die at a relatively young age (something else that did not surprise the social work students I was speaking to).  Research done on Toronto’s population in 2007 found that homeless persons were 4X more likely to have cancer than members of the general population.  And as Dr. Stephen Hwang once noted: “Homeless people in their forties and fifties often develop health disabilities that are more commonly seen only in people who are decades older.”

5. From a legal standpoint, there appears to be very little that any level of government must do about all of this.  As my colleague Marion Steele has pointed out: “I think it is important to make the distinction between what governments are permitted to do and what they must do. There is very little they must do, although the charter challenge [to be discussed below] is about this idea” (M. Steele, personal communication, January 14, 2015; emphasis in original).

6. Mortgage regulation is a federal responsibility.  Federal involvement and authority to act in Canada’s mortgage market comes from two sources.  First, with the creation of Canada Mortgage and Housing Corporation (CMHC) and the National Housing Act, the federal government was permitted to provide mortgage insurance (and set terms of eligibility for the insurance).  Second, through the Bank Act and other financial regulation, financial institutions in Canada (including banks) are forbidden from issuing mortgages with more than an 80% loan-to-value ratio, unless the mortgage is insured.

7. Land-use planning is constitutionally defined as a responsibility of provinces and territories.  However, all provinces and territories have enacted legislation (municipal Acts and planning acts) that effectively devolve responsibility for planning to local government, albeit subject to the provincial legislation.

8. Landlord-tenant relations are a provincial/territorial responsibility.  According to my colleague Shibil Siddiqi, “Under the Constitution, property and civil rights are and have always been in the provincial domain. Accordingly, Ontario is responsible for regulating landlord-tenant relations and this hasn’t changed much at all over the years. Historically landlord-tenant law was seen as a subset of property law” (S. Siddiqi, personal communication, January 6, 2015).

9. Even though CMHC itself recognizes that more than 12% of Canadian households are in “core housing need,” no level of government in Canada accepts responsibility for developing the necessary new supply of affordable housing that would address this problem (and this includes housing for Aboriginal persons, whether they live ‘on reserve’ or in urban centres).  That said, the federal government has a minister responsible for CMHC; and at the provincial/territorial level, housing is often included as part of a ministry/department’s responsibilities.  Most provinces (including Ontario) have signed agreements with the federal government pertaining to the administration (i.e. program oversight) of already-existing units of private non-profit and public housing.  In Ontario, municipalities are charged with administering these agreements.  (For more on what exactly is meant by “core housing need,” see this link.)

10. Some advocates believe that the Canadian Charter of Rights and Freedoms changes much of this.  Many blog readers have likely heard of a recent ‘right to housing’ Charter challenge, which has been fought by Ontario legal clinics since 2010.  The clinics argued that a failure to provide adequate housing is a breach of Canada’s and Ontario’s obligations under the Charter and under international law.” The clinics recently lost at the Ontario Court of Appeal “and are preparing to seek leave at the Supreme Court” (S. Siddiqi, personal communication, January 6, 2015).

-

The full slide deck for my presentation is available here.  Frances Abele, George Fallis, Josh Gladstone, Michael Mendelson, Steve Pomeroy, Shibil Siddiqi, Marion Steele, Trudy Sutton and Greg Suttor were all helpful in the preparation of the deck.  Any errors are mine.

 

Don’t Play Tories’ Game on “Risk” of Deficit

Acres of newsprint have been devoted in recent weeks to the possibility that lower oil prices might push the federal budget back into a deficit position.  As I argue in my column in today’s Globe and Mail, this drama is mostly political theatre — and progressives should be cautious about accidentally accepting the Conservative frame for this debate.

Read more »

PEF 2015 Student Essay Competition

The 2015 competition is now open for submissions. Deadline 04 May 2015.

Please help us get the word out! Download a poster here.

2015 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 2015 competition must have been/be enrolled in a post-secondary educational institution at some point during the period of May 2014 – May 2015.

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 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 May 04, 2015, to:
essaycontest@progressive-economics.ca
➢ …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, single-authored essays that do not infringe upon the rights of any third parties
➢ …accepted on re-submission once
➢ …accompanied by a signed scanned file of the completed PEF Essay Contest Submission Form.

Entrants consent to having the Progressive Economic 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 Economic Forum will judge entries.
➢ Entries will be judged according to the following criteria: substance and originality, writing style, composition, and organization.
➢ The Progressive Economic Forum reserves the right not to award a prize or any prizes 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.

Click here to read winning essays from previous competitions.

Rochon on the Bank of Canada’s Decision to Lower the Rate of Interest

Louis-Philippe Rochon—who now blogs for CBC—argues that almost nobody had been expecting the Bank of Canada’s recent decision to lower the rate of interest.

His post can be found here.

Follow him on Twitter @Lprochon.

Trudeau, Carbon Pricing, Regional Politics, and Technology Policy

Yesterday, Justin Trudeau appeared to be backing away from a national carbon price. He says some of the provinces have already implemented carbon pricing, so the federal government will be left to “oversee”. What Trudeau is actually saying isn’t quite clear, but it certainly seems like he is giving up on creating a national carbon price and leaving it to the provinces.

In the subsequent discussions on twitter, some pointed towards the difficult politics of carbon pricing in Canada’s regionally diverse federation. Below I will argue that the ideal policy response to Canada’s regional diversity involves implementing geographically specific clean energy transition policies. It does not involve giving up on a national carbon-pricing framework.

The problem with leaving carbon pricing up to the provinces is that a national policy to make polluters pay will not be effectively or uniformly implemented. In Canada, it is the relatively low per capita emitting provinces of British Columbia, Québec and possibly Ontario that have shown a willingness to price carbon. If a new federal government abdicates its responsibility to implement carbon pricing, the highest emitting provinces will be able to continue to do very little (e.g. Alberta) or nothing. Furthermore, one of the reasons provinces and states launched collaborations on carbon pricing to begin with, was because they anticipated that their respective federal government’s would eventually take action. Many of the sub-national initiatives have lost steam because national governments have not moved to create national standards. (On this see Kathryn Harrison 2013)

The ideal carbon pricing policy involves a uniform price for every tonne of GHG, regardless of where it is emitted. This has been the mantra of market-oriented environmental economists for some time now. Of course, a carbon pricing policy has to actually be implemented and this involves politics. As is no surprise to political economists, a carbon “market” or a tax equal to the cost of the environmental externality, does not just naturally evolve. New market and market-based incentives need to be implemented by the state, and this introduces political power and political negotiation.

Canadian politics has historically revolved around regional considerations. Climate and energy politics is no exception, because of the quite distinct provincial energy systems and sectoral compositions of provincial economies. Given Canada’s particular institutional arrangements, uniform policies can spur regional conflicts and fail to meet intended policy objectives. In his 1943 essay “Decentralization and Democracy”, Harold Innis warned that the “new” natural resources of petroleum and hydroelectricity contributed to increased regional segmentation and regional tensions. He critiqued policies that only manipulated “a single instrument” because they could have differential effects across Canada’s geographic landscape. He noted “each region has its conditions of equilibrium in relation to the rest of Canada and the rest of the world”. Innis’ words were prescient. Today we find relatively progressive climate policies in Canada’s hydro-rich provinces and the regionally concentrated bitumen sands have a large impact on Canada’s continued growth in GHG emissions.

While regional diversity is a basic fact of Canada, it does not mean the federal government should abdicate its responsibilities for implementing a national carbon price. It does mean that it should not be the ONLY policy in the toolkit (as is sometimes proposed by economists with too much faith in market mechanisms).

Given Canada’s regional diversity, a comprehensive climate change strategy also needs to prioritize policies that are targeted to the circumstances within particular regions as well as different sectors of the economy. The leverage points within supply chains, sectoral linkages, and clean energy innovation clusters, will look very different in Québec vs. Alberta. Different provinces and regions will also have to manage different types of industrial restructuring.

A carbon pricing policy will have a hard time dealing with regional specifics while remaining effective. In contrast, an innovation policy approach that sees a role for governments in analyzing and then coordinating various interventions to facilitate low-carbon development paths is designed to recognize regional and sectoral differences. Innovation policy goes well beyond R&D. It can also include promoting strategic planning processes; creating knowledge sharing networks; training and investment in strategic technologies; creating niche markets to facilitate learning and experimentation; and exploiting linkages between traditional industries and emerging technologies that could spin off new industries. More targeted innovation policies have the political benefit of more clearly defining low-carbon social and technological visions, and mobilizing clean technology advocates. The federal government has a role in enabling regional innovation processes so they aggregate to meet national climate objectives.

Unfortunately, a robust discussion of the federal role in a clean energy technology policy has been missing. A “carbon price” has been the only game in town within federal climate policy discussions for quite some time. Without carbon pricing the federal climate policy cupboard looks pretty bare. The solution is not to give up on carbon pricing, as Mr. Trudeau seems to be suggesting. Rather, we should put more policy items on the cupboard. A policy framework that supports regionally specific low-carbon transition processes would complement a national carbon price quite nicely.

Rethinking Economics Waterloo Conference, Feb 7

Ali Kraushaar and  Geoff Evamy Hill, co-founders of the Rethinking Economics Waterloo initiative, are organizing a conference to be held Feb 7. It looks good!  See below.

We want to inform you about the Rethinking Economics Waterloo Conference happening at St. Paul’s University College on Saturday, February 7. We invite you and all your members to be there, and hope we can collaborate on spreading the word!

The Rethinking Economics Waterloo Conference is all about asking if, how, and why economics can and should be rethought. Over the course of the day, participants will be hearing from a variety of distinguished speakers, representing various disciplines, professions, and schools of thought. We will also have a number of interactive discussion workshops.
This is a local kick-off for a conversation that’s already happening worldwide about methodological, disciplinary and theoretical pluralism in the study of economies.

Our speakers include:
  • Dr. John Bonnett – Canada Research Chair Digital Humanities, Brock University
  • Dr. Daniel Drache – Professor of Political Science & Canadian Studies, York University
  • Dr. Peter Victor – Professor of Economics, York University
  • Dr. Jennifer Clapp – Canada Research Chair Global Food Security, uWaterloo
  • Dr. Lutz-Alexander Busch – Associate Undergraduate Chair of Economics, uWaterloo
  • Joe Mancini – Director of the Working Centre, Kitchener
  • Dr. Patricia Marino – Professor of Philosophy, uWaterloo
The event is being held thanks to the generous support of the Faculty of Environment, Economics Department, Philosophy Department, Department of Knowledge Integration, and the Waterloo Environment Students’ Endowment Fund. The event is open to the public as well as students and faculty of all disciplines.
check out our Facebook Page

More information on the global Rethinking Economics movement:

Rethinking Economics is a global “grassroots” network of students, thinkers, and citizens who seek to give voice to new and marginalized economics narratives that could enrich economic theory, research, and teaching. Rethinking Economics aims to make economics more accessible, diverse, reflective and responsible for the public eye and within academia. Recently, Rethinking Economics has been mentioned in the news for its membership in the International Student Initiative for Pluralism in , Economics (ISIPE), Al Jazeera for its recent London, UK Conference as well as the New York Times following the Rethinking Economics Conference in New York City.

We thank you for spreading the word about this event. We hope to collaborate in the future and look forward to seeing you on February 7!

Sincerely,

Ali Kraushaar & Geoff Evamy Hill

Co-Founders, Rethinking Economics Waterloo