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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.


➢ 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.

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 in a graduate program.

➢ 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 entries will be…
➢ …sent by email at the latest on May 04, 2015, to:
➢ …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.

➢ 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.

➢ 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!


Ali Kraushaar & Geoff Evamy Hill

Co-Founders, Rethinking Economics Waterloo

Banks and Balanced Budgets

The Bank of Canada surprised most analysts this week when it decided to cut rates by 25 basis points. The move comes after the price of oil has tumbled below $50 / barrel, oil producers announced huge cuts to business investment for 2015, Target announced a mass layoff of 17,600 workers in Canada, and the International Monetary Fund warned of a global economic slowdown.

The key message of the January Monetary Policy is that the Canadian economy needs stimulus. The Bank’s view of the Canadian economy stands in sharp contrast to that of the federal government, which is intent on delivering a balanced budget with a basket full of family tax cut goodies. By spending their surplus before they had even secured it, and then also sticking to an unrealistic balanced budget timeline, this government painted themselves into a corner, and made themselves look very foolish.

Thank goodness that the Bank was willing to act, and put the wellbeing of Canadians over concerns of a housing bubble and excess household debt.

So, what was the biggest outcome of the announcement? The loonie fell to 81 cents USD, down nearly two cents on the day. It is now five cents lower than it was on January 1st. Since oil and other commodities are priced in US dollars, the lower loonie effectively boosts prices for Canadian commodities producers. For those that were operating at or just below their short-run cost margins, this is great news. According to the following chart taken from Timothy Lane’s remarks on January 13th, that includes several sites in Canada.


While many analysts pointed to how this move was good for manufacturing, the most immediate impact of the Bank’s rate cut is to save thousands of jobs in the oil, gas, and mining sector.

As I’ve pointed out before, the benefit to manufacturing depends partly on the ability of existing manufacturing firms to grow. New entrants will be unlikely to rely on the lower dollar to stick around forever, but may be able to use the current cushion to get their projects off the ground. This will take some time. The lower dollar increases most machine and equipment input costs, so labour intensive firms actually have the advantage in the current environment.

The Bank issues its next rate announcement in March, and many observers are considering the possibility of another rate cut at that time. What is that likely to depend on? Well, the Bank based their estimate on $60 oil, and it’s currently below $50. The price is unlikely to rise until something gives on the supply side. Canadian and American producers are currently saying that their production will increase this year, just at a slower rate than last year. Saudi Arabia seems intent on keeping supply high until it forces some of those North American producers out of the market. If the price of oil stays low for the next couple of months, we could easily be looking at yet another cut from the Bank. Would it be enough for Stephen Harper to give up on a balanced budget? That’s a tougher question.

The CBC – the Corporate Broadcasting Corp.

A new scandal blew up at the CBC this week when the website Canadaland published an exposé charging that Amanda Lang, the broadcaster’s senior business reporter and host of The Exchange, tried to sabotage an investigative story the CBC produced about abuses committed by the Royal Bank of Canada (RBC) over the temporary foreign worker program (TFWP).

The story aired in April of 2013 and revealed that the RBC was using an Indian company called iGATE Corp. that was bringing in foreign workers under the program, but then allowed the workers to stay in Canada for years, with the intention of using them to replace Canadian workers. The story showed how Canada’s biggest bank was using a government program to cruelly exploit defenseless foreign workers while throwing Canadian citizens out of work. After the story aired, the Harper government was forced to alter the program, and RBC got a lot of bad press.

But in the rollout of the story, Canadaland alleges that Lang tried to dismiss the story’s importance by arguing that what the RBC was doing was merely outsourcing (in itself, a dreadful practise). Despite not being involved in the story, she was inexplicably allowed to participate in a conference call of the producers who were working on the piece, where she argued the bank’s position. After the story aired, the allegation is that the CBC did little follow up – possibly because of Lang’s internal meddling.

In fact, there were a number of things the CBC producers involved in the story didn’t know about Lang’s surprising intervention, namely: 1) She had been paid up to $15,000 a pop to conduct speaking engagements at RBC-sponsored events; and 2) She was involved in a romantic relationship with a member of the RBC’s board of directors, W. Geoffrey Beattie.

Then, immediately after the story aired, Lang invited the RBC’s CEO, Gord Nixon, to do an interview on the The National where he pissed all over the broadcaster and its story about the bank’s TFWP abuses. Lang did a puffball interview, apparently asking no hard questions.

To make matters worse, without informing her bosses, Lang approached the Globe and Mail and penned an op-ed page piece where she championed the practice of companies outsourcing jobs to countries like India.

Despite all this, when the Lang story broke, the CBC brass immediately (and angrily) rushed to her defence. Jennifer McGuire, the CBC’s editor-in-chief, vehemently denied Lang had done anything wrong. McGuire, CBC spokesperson Chuck Thompson and Lang herself launched a PR media onslaught, attacking the Canadaland story, saying she had not tried to sabotage the TFWP story.

This is not the only issue where Lang has crossed over into the world of outright corporate flackery. She’s also taken paid speaking gigs for insurance companies Manulife and Sun Life and then had their CEOs on the CBC to do further puffball interviews.

The Lang affair comes hard on the heels of the debacle over the Jian Ghomeshi assault scandal (also broken by Canadaland’s owner, journalist Jesse Brown). But while the Ghomeshi affair revealed the craven efforts of CBC’s management to protect one of their stars in the facing of numerous allegations of assaulting women, the Lang affair speaks to the issue of how the CBC has, in effect, increasingly become a mouthpiece for big business and neo-conservative ideologues.

I worked at the CBC for nine years, from 2001 to the end of 2009 before I lost my job as a producer on the investigative unit due to budget cuts. I’d joined the CBC as an associate producer at “the fifth estate” and eventually worked at CBC News Sunday as a producer. I owe a lot to the CBC and had the pleasure of working with amazing people on great stories. I still have many friends who work there.

As a result, I saw the beginnings of the metamorphosis of the CBC that begat the Amanda Lang scandal. This change in the CBC’s direction began under former CEO Robert Rabinovitch. In 2004, Rabinovitch appointed Richard Stursberg, a millionaire and former head of Telefilm Canada, as vice-president of English services. At the time, CBC English television was in a ratings slump, having been hammered by government cutbacks, competition from other channels and the Internet, as well as uninspired programming.

Stursberg brought a business approach to the CBC, which in practice translated into transforming it into a private network backed with public funds. Symphonies and experimental films and documentaries were out, and the “Battle of the Blades” was in. Meanwhile, “the fifth estate” saw its budgets cut, and moved from a primetime TV slot on Wednesday nights to the graveyard shift of Friday nights, to make way for a now long-forgotten sitcom called “Being Erica”.

In 2005, Rabinovitch engineered a showdown with the CBC’s main union, the Canadian Media Guild, locking out 5,500 workers (myself included) for two months. Management’s goal was to try and get hundreds of positions delegated as contract positions, thereby allowing the brass more ability to get rid of staff whenever they wanted. They won a partial victory in this dustup.

The CBC was now run like any other textbook corporation, with union-busting embraced. Employee morale sank, stress levels rose, and dread over the constant reality of layoffs and cuts grew. Stursberg emerged as an unpopular if not openly despised figure.

To be fair to Stursberg, the federal government seemed determined to let the CBC die the death of a thousand cuts, especially after the election of the Conservatives in 2006. His solution to this reality was to try and drive up ratings by producing popular programming in the hopes that advertising dollars would follow, which would stem the financial leakage. But he also evinced such open contempt for the news department (which he labeled “Fort News”) and current affairs – the very lifeblood of the CBC’s raison d’etre as a public broadcaster – that he alienated the beleaguered CBC staff.

The other change Stursberg introduced was of an ideological nature. In an interview I did with him in 2012, Stursberg said he wanted to change the perception that the CBC was too downtown Toronto leftist. In 2006, the CBC began airing Dragon’s Den, the show where rich businesspeople decide whether to finance the ideas and dreams of would-be entrepreneurs. It’s a horrible program, with the “Dragons” appearing as arrogant super-clever overlords where they often mock the those who come seeking money as if they were dumb serfs. It’s a show that promulgates the idea the rich deserve their wealth.

Then, in 2009, Stursberg snatched up Kevin O’Leary and Amanda Lang from the Business News Network (BNN) and gave them an hour-long show everyday during the dinner hour. O’Leary was a failed and unethical businessman, who sold a sham of a company to Mattel, the toy manufacturer, in what Businessweek later called one of the worst deals of all time. He was fired, sued and almost destroyed Mattel in the process. Just about every other project he’s touched has been a disaster, too. Yet Lang, who clearly is no journalist, was happy to be his co-host and tolerate his far-right wing blatherings, which he showered on viewers everyday. Despite his odiousness, O’Leary became a star.

Meanwhile, too many CBC hosts – who are extremely well compensated to begin with – were using their fame to make more money by giving speeches on the side. Both Rex Murphy and Peter Mansbridge were caught doing speeches for the oil industry. Murphy, who is a right-wing ideologue, also writes a turgid column for the pro-business National Post, where he rails against environmentalists on global warming, champions the oil sands and pipelines, and protests any effort to fight climate change. And yet Murphy is given the soapbox of the CBC’s The National to vomit forth his bizarre jeremiads like some bug-eyed curmudgeon.

At the same time, the CBC’s investigative unit, run by one of Canada’s most accomplished investigative journalists, Harvey Cashore, has limped along for years since it was created in 2009 with inadequate funding. In the latest round of cuts last year, his meager budget was cut down to virtually nothing. And yet this unit has broken important stories about how rich and powerful Canadians use offshore tax havens to evade the Canada Revenue Agency.

Since 2007, the CBC has been presided over by lawyer Hubert T. Lacroix, who used to work at the Canada’s most powerful corporate law firm, McCarthy Tétrault, as a business lawyer. He’s embraced, without complaint, every effort by the Harper government to kill off the CBC. Meanwhile, the CBC board is made up of Conservative appointees, most of whom have business or corporate law backgrounds.

Stephen Harper’s vision of Canada clearly does not include a national public broadcaster. Even in its castrated form, the CBC occasionally produces critical journalism. The private sector has long wanted to kill it off, too. The recent scandals that have plagued the broadcaster, brought on by its incompetent managers and toxic internal environment, further erode public trust in its existence. And that is a tragedy. For Canada needs the CBC – just not the pro-corporate current incarnation.

The case against a revenue-neutral carbon tax

I’m a fan of carbon taxes, but increasingly I see the term “revenue-neutral” attached to it. Where I live, in BC, we have perhaps the most prominent example of a revenue-neutral carbon tax, and carbon tax advocates have come to promoting the BC model to other jurisdictions, such as Ontario, who are contemplating their own carbon tax. This includes the new EcoFiscal Commission, which endorses a naive view of markets – the magic of free markets is alive and well, and if only we could put a price on carbon to change marketplace incentives, all will be well.

Revenue neutrality is a bug of BC’s carbon tax framework, not a feature. Here’s why.

First of all, while economists love the idea, most ordinary people simply don’t get it. Revenue neutral is the idea that all carbon tax revenues must flow back out the door as other tax cuts (typically income tax) but also could be in the form of tax credits or a fixed dividend. In some cases, people do not trust that this is going to happen as promised. In BC, they would be right, as 2/3 of carbon tax revenues have been used to support corporate income tax cuts.

More importantly, while people may not like paying taxes, when they do they want to see that money build stuff. That is how people understand taxes. And dang it, we need to build a lot of stuff to get us off of fossil fuels: walkable and bike-able communities, public transit, energy-efficient buildings, zero waste systems, renewable energy, as well as forest conservation and stewardship measures.

None of these things can effectively be bought with a tax cut. Indeed, the ability of many actors to respond to a carbon price is constrained by their circumstances: if you live in the suburbs you don’t really have an option but to keep driving; if you are a renter you don’t have agency over energy efficiency investments; and even if you are a concerned home owner, the area of energy efficiency is plagued by market failures in information, such that profitable investments often go unrealized in favour of the status quo.

Big picture, climate action requires that we act together to make systemic changes and infrastructure investments to reduce our emissions. Carbon pricing is part of the answer, but regulations and public investment are also needed. Too many carbon tax advocates tend to pit carbon taxes against those other measures.

The case for revenue neutral is often made on the grounds that people won’t support it otherwise. In response, I note recent comments from Washington State Governor Jay Inslee, as the state looks at a more aggressive climate action plan:

My conclusion is that a revenue-neutral proposal does not give you additional support either in the legislature or in the public. It actually has diminished support. That’s from a guy who’s been in this business for 22 years, and both won and lost elections. It’s important to listen to people, and I’ve listened to people and that’s the conclusion that I’ve reached.

Revenue-neutral advocates also make unsupported claims about the benefits of tax cuts, especially personal income tax cuts. In particular, the claim that PIT cuts will be beneficial due to disincentives to work from taxes is just plain wrong. Even in economic theory the impact is ambiguous (there are both income and substitution effects in response to a tax change). People cannot easily alter their hours of work in response to PIT rates, and studies show that the impact of PIT on work effort is basically zero. In fact the top 1% facing the highest top marginal tax rates tend to work longer hours.

If you want to maximize the economic benefit of those carbon tax revenues, it is widely known that public spending/investment is a better approach. Multipliers for public investment are much higher than for tax cuts. That is, they have a bigger impact on employment and provide a bigger boost to GDP. So to the extent that carbon taxes are part of the answer, they are more effective if revenues are used to support climate action initiatives, economically and in terms of affecting the change we want.

Some perspective on effectiveness also comes from the collapse of market prices for oil, a price impact which far outweighs any carbon pricing on offer. Historically, price swings due to market forces swamp carbon pricing efforts. Vancouver is a good example, even on a weekly basis as the price of gas fluctuates by more than the amount of the carbon tax. If we were to boost gas prices back to levels of June 2014, before the price crash, we’d be looking at a carbon tax of more than $200 per tonne.

Finally, revenue neutrality is bad public finance. PIT funds important public services that we will need well after we solve our carbon problem. We need stable revenue bases (income and sales being the main ones) to support a vibrant public sector. This is often neglected by economists whose models start with a hypothetically perfect market without government, then crudely “prove” that government interventions make things worse by deviating from that fantasy equilibrium. This includes results from computable general equilibrium (CGE) models, which are presented as if they are offering empirical data when they are really just taking bad theory and putting numbers to it.

So let’s say yes to carbon taxes, but no to BC’s revenue neutral approach. Supporters of the BC model also tend to gloss over the BC government’s obsession with natural gas exports, which if successful would pump hundreds of millions of tonnes of CO2 into the air each year.

If we are to stay below 2 degrees of global warming, major constraints on carbon will be needed, and a large portion of our fossil fuel reserves left in the ground. So the appropriate question is what is a carbon pricing trajectory consistent with that, or consistent with Canada’s plausible share of global carbon budget (as recommended by the IPCC).

Income transfers do need to be part of the system, because carbon taxes are regressive – they have a bigger hit on the incomes of low-income households than high-income households. So I support an enhanced credit that would go to low- to middle-income households. A flat dividend approach is favoured by some, but I like Canada’s experience with transfers like Old Age Security and Child Tax Benefits that reach a high percentage of households, but target the most income to the most in need.

The naive markets view has come up with some catchy slogans (e.g. “tax what you burn, not what you earn”), I’ll give them that. But their approach is too rooted in neoclassical economics and is biased towards individual- or firm-level decision making in response to price changes. We can have fair and effective carbon pricing, but that means giving up on revenue neutrality (for more on the BC carbon tax, see this report).

Low Oil Prices, Good or Bad for Canada?

Unless you’ve been hiding under a rock somewhere, you’re probably well aware that the price of oil has fallen dramatically, to less than $50 / barrel. What this means for Canada’s economic output & labour markets is not yet clear. But Stephen Poloz at the Bank of Canada has said that he expects the effect to be “not trivial”, and suggested that it might lower the Bank’s GDP expectations by around 0.3 percentage points. Deputy Governor Timothy Lane’s talk on January 13th is good background reading on this topic, and overall he suggested that the effect will be at least somewhat negative for the Canadian economy. Other commentators have suggested that the lower dollar and the US economy’s pick-up will swamp any negative effects, leading to an overall positive effect nationally.

There are several reasons why I would side with the more pessimistic predictions. I also think that the policy response to a more pessimistic outlook is consistent with the policy response to medium and long term global constraints, such as climate change. Let me tell you why.

I’ve commented earlier on the Bank of Canada’s review of manufacturing capacity lost during the past recession, and the CIBC has put out a note on this as well. Avery Shenfeld and Andrew Grantham point out that significant capacity loss has been centred in manufacturing sectors that are sensitive to changes in the Canadian dollar (and therefore might be poised for a period of expansion). It takes much longer for business to respond to exchange rate signals when they don’t have existing excess capacity. Shenfeld and Grantham suggest that it could take several years of an 80 – 85 cent dollar before we saw a return to a vibrant manufacturing sector in southern Ontario. This is different than previous recessions, where Ontario had excess manufacturing capacity that could quickly respond to price signals.

Also, communities in Ontario and Atlantic Canada have depended on remittances from workers who either commute or move to Alberta for high -wage jobs in the tar sands or construction. These workers are likely to be laid off first, creating a drag on the economy that will be felt far outside Fort McMurray.

The other fear is that Alberta and the federal government will respond to lower revenues with more cuts, that will act as a further drag on economic growth. This would be the least effective response, but given current provincial and federal leadership, is also the most likely.

Rather than cross our fingers and hope for a manufacturing led recovery, I think that all levels of government, unions, and business need to think about what kinds of infrastructure we need to put in place to be ready for long term challenges. Governments especially should think about what kind of infrastructure would encourage new economic growth, rather than simply handing out funds to existing business.

A recent Nature paper suggests that negative economic impacts can be mitigated by taking early action on climate change. I think we’ve missed the boat on ‘early’, but sooner is always better than later. The earlier a jurisdiction can introduce a carbon pricing scheme (such as the one Ontario is expected to announce this year), the sooner businesses and individuals can adjust. This would give them a competitive advantage against firms in jurisdictions that are slower to respond to what is arguably an inevitable reality.

Let’s look forward to new challenges with new thinking. We’ll never dig ourselves out of the hole we’re in by using the tools that got us here in the first place.

Louis-Philippe Rochon’s Top 10 Economic Predictions for 2015

Louis-Philippe Rochon has written a provocative blog post for the CBC titled “Top 10 Economic Predictions for 2015.”

The post is available here.

Five Good Economic Developments in 2014

Every year has its ups and downs, of course. But there’s something about New Year’s that makes one naturally want to emphasize the positive.  So here is my personal list of 5 positive economic developments from the year past — both globally and right here at home — that warmed this particular economist’s left-wing heart in 2014: Read more »

‘Tis the Season to Rethink Our Charitable Giving

This op-ed by yours truly was published in The Province. The examples are BC-specific, but the message is much broader: donating to charity is not enough, we also have to change the status quo that forces so many people to turn to charity in a rich country like Canada.

It’s December, the season for charitable giving. Wherever you turn you see boxes and bins collecting non-perishable food items for the local food bank or toys for the less fortunate children in our communities.

The cashier asks if you want to add a $2 donation to your purchase. You donate like you did last year. But the problem doesn’t seem to go away.

Quite the opposite, the problem is getting bigger every year. Food Banks Canada’s recent HungerCount 2014 report shows that the number of people helped by charitable food programs is on the rise even though the economy is improving. In British Columbia, close to 100,000 people relied on a food bank to make ends meet in a typical month this year, a 25% increase since before the Great Recession of 2008 and 4% higher than last year.

With an increasing number of people coming to their doors, food banks need our donations more than ever to meet the immediate needs of our neighbours living in poverty. But the help they are able to provide offers only short-term relief. It’s not a solution because it doesn’t address the root causes of the hunger and need in our communities.

Food banks themselves know this. You’ll find a number of recommendations in their annual HungerCount reports, and none of them is for Canadians to donate more to charity.

Instead, food banks advocate for policy changes to deal with the systemic causes of poverty in a prosperous country like ours, things like federal government investment in affordable housing, programs to address food insecurity in the North, and enhancements to provincial welfare.

These are some of the key planks of what a comprehensive poverty reduction plan for BC must include. And they require governments to take a leadership role.

Poverty is not a problem that can be solved by soup kitchens, food banks and Christmas toy drives any more than a leaky roof can be fixed by mopping the puddles off the floor. A government-led, comprehensive poverty reduction plan with an accountability mechanism to ensure that anti-poverty initiatives are sustained, evaluated and modified as needed is what’s required.

There is broad support for such a plan from community groups, educators, health professionals and other concerned British Columbians who’ve joined the BC Poverty Reduction Coalition. But in the absence of leadership from our provincial government – the only one in Canada to have not committed to a poverty reduction plan – it’s easy to become overwhelmed.

If donating to charity or volunteering in a soup kitchen won’t solve the underlying problems, what is a concerned British Columbian to do? The same thing we always do when our current strategy isn’t working – shift gears and do a little more.

This holiday season, I challenge you to do one more thing than you did last year. Just one. But make it something that would help change the status quo.

What could this mean for you?


If you donated to the local food bank, volunteered at a soup kitchen, organized a toy drive, please do it again. But don’t stop there.


If you’ve never written a letter to the Premier, write one. Tell the Premier and your MLA why you’re bothered by the extent of poverty in our prosperous country and urge her to show leadership in solving this issue. There is broad community support for a comprehensive poverty reduction plan. Even the Legislature’s Committee on Finance and Government Services recommended “a comprehensive poverty reduction plan, and review income assistance rates, the minimum wage, and clawback of child support payments” in its 2015 Budget Consultation report.


If you’ve written letters before, consider meeting with your MLA in person to talk to them about poverty in your community and urge them to take action. Or donate to an organization that advocates for systemic change. Or volunteer for an advocacy organization. There are many great ones to choose from.


Join the Fight for $15, a campaign to raise the minimum wage; add your voice to the Living Wage Campaign asking large employers and governments to voluntarily pay a living wage; or support community efforts to increase welfare rates for those who are unable to work. Join the BC Poverty Reduction Coalition.

There are many ways you can make a difference. This holiday season choose one you feel comfortable with and help change the conversation about poverty.


(Macro) Econ 101

On December 2, Chris Ragan wrote a column for the Globe and Mail titled “Another (Macro) Defense of Econ 101.”  The link to his column is available here .  My brief reply was published in the Globe and Mail on December 13.  The full version is below:

Professor Ragan defends conventional (macro) Econ 101 as a pedagogical tool for training students’ minds to confront and grapple with the complex economic problems they encounter in their daily lives.

I agree:  Econ 101 should begin training the mind to handle complexity.  Unfortunately, conventional Econ 101 doesn’t do this very well, often stranding one out in abstraction while under the illusion that one’s firmly grounded in the real world.

One need go no further than to see this inadequacy reflected in the failure of economists to reconcile the two solitudes of microeconomics (with its emphasis on individual markets) and macroeconomics (with its focus on the emergent effects of the assemblage of all markets, such as unemployment and inflation).  The macroeconomy is just not the aggregation of the micro, the sum of its parts behaving as though in isolation, but the complex interactions of the parts, often resulting in unintended consequences or paradoxes.

One attempt to reconcile micro and macro, the microfoundations project, was discredited by the 2008 financial crisis.  Quoting Paul Krugman in 2009, “there was nothing in the prevailing models suggesting the kind of collapse that happened last year.” This has been the greatest professional embarrassment faced by the economics discipline since its handling of stagflation in the 1970s, leading the Queen to summon economists to explain themselves.

There are at least three explanations for the failure of the microfoundations project, and they can be traced back to the content of conventional Econ 101.

Human behavior. The homo economicus assumption taught in Econ 101 of the self-interested rational super calculator fell out of favour even with the arch-libertarian Alan Greenspan, who expressed shock that American bankers did not self-regulate in a dangerous game of hot potato that ultimately collapsed.

Institutions.  The role of social norms, shared beliefs, or “rules of the game” are largely absent in Econ 101 and are often depicted as costly imperfections to the economy rather than as structures keeping it on the rails.  Ironically, institutions explain the perverse incentives that nudged many American mortgage lenders away from prudent monitoring of their loan portfolios, fuelling the subprime mortgage crisis.

History.  While there are analytic advantages to separating the flow of time into the short and long run, there is the risk of losing sight that the actual experienced moment of time features both the short and long run.  As a result, historical time and by extension, history, get marginalized.  Professor Ragan obviously recognizes the importance of history, as is evident in his November 18 column on “hysteresis”, which explains how the long run path of the macroeconomy can be influenced by disruptions in the short run, such as the 2008 financial crisis.  However, it is my experience that the idea of hysteresis is not introduced in Econ 101, as theoretical rigour tends to override analysis of real world historical processes.

Human behavior, institutions and history all contribute to the complexity of macroeconomics and can explain such emergent effects as the paradox of thrift, that in a nutshell, shows that if all players save en masse, the economy will shrink. These complex realities necessitate complex policies at time when we are confronted with the confounding challenges of climate change, growing income inequality, an aging work force and stagnating growth.

The stakes are high, and some first year students, like the 70 Harvard undergrads who in 2011 walked out of Econ 101, know this and are right to be questioning what they are taught.  Teaching Econ 101 should not about preaching from some sacred scriptural text but should rather be more of an evolving conversation among economists, and with their students.

The Ontario Auditor’s damning report on P3s

The Ontario Auditor General’s 2014 Report includes a chapter on Infrastructure Ontario’s P3 program that is particularly damning–and corresponds with many of the criticisms made on this blog and elsewhere by myself and others.

While the headlines were that P3 projects cost the province an additional $8 billion than if they were procured traditionally, the report documents numerous other problems with the province’s P3 program and practices that should appal anyone concerned about responsible public policy and the appropriate use of public funds.

The problems identified by the Ontario AG with these P3 (or AFP “Alternative Financing and Procurement” as Ontario calls them) projects aren’t unique to Infrastructure Ontario.  In fact they are common to the “Canadian P3 model” and are undoubtedly worse in terms of the practices of other provinces and the federal government –and unfortunately for municipalities, First Nations and other public entities who are having P3s being foisted upon them by federal and provincial governments.

Given how much money is being steered through P3s, other auditors must take serious consideration of these criticisms and follow up with similar audits themselves.   While each province may have their own P3 agency and may have specific requirements, from what I’ve seen, most involve business cases and value for money assessments that resemble the Ontario model.

What’s just as important is that governments provide full transparency of the costing and other details of P3s, particularly all the details that go into the key Value for Money (VfM) assessments (and especially the details on assumed risk transfer) that are used to justify P3s.

The Value for Money assessments and business cases made public are little more than window dressing justifications for decisions that have already been made.  I and others have requested background information or even their models, but P3 agencies have refused to make further details available claiming that they are protecting “commercial confidentiality”, which is a thoroughly specious excuse.  In reality, as we’ve long suspected and as this report by the Ontario AG demonstrates, all they are protecting by keeping this information secret are their own absurd assumptions.

Here’s a summary, with some commentary:

Read more »

The Ecofiscal Commission and Polluter Pay

From iPolitics, here is my constructively critical take on the first discussion paper of the new Commission chaired by Chris Ragan. In a nutshell, polluter pay is a good idea, and it is good to see such a mainstream crowd endorse the principle, but the principle of recycling the increased revenues to personal and corporate income tax cuts is not such a good idea. In fact it is bad environmental policy because we need a strong fiscal base to fund subsidies and public investment to undertake major transitions.


CGE models and carbon tax incidence

A colleague of mine pointed out a relatively new paper about the distributional impacts of BC’s carbon tax. In my work, we look at actual energy expenditures by different household groups, and because lower income groups spend a greater share of their income on (carbon-intensive) energy, any carbon tax is regressive. But that regressivity ultimately depends on what you do with the revenues, and can be compensated with a credit. In BC’s case, when the carbon tax was instituted, there was a decent low-income credit that made the overall regime progressive, but as the tax increased from $10 to $30 per tonne, the credit did not keep up, and the current regime is regressive. Not massively so, but it is important to get the details right before scaling up.

The authors take issue with my work in the area for only looking at the direct effect of the carbon tax, and not a range of economy-wide impacts that then feed back into distribution:

Recent research in other contexts, however, has found that the incidence of energy and carbon taxes is dictated by general equilibrium responses and not well approximated by partial equilibrium studies such as Lee (2011) and Lee and Sanger (2008), which only consider the distributional effects resulting from households’ consumption of the taxed fuels and other carbon-intensive products.

It’s certainly an interesting argument, and they come up with a startling finding:

Using the model, we find that the existing BC carbon tax is highly progressive even prior to consideration of the revenue recycling scheme, such that the negative impact of the carbon tax on households with below-median income are smaller than that on households with above-median income. We show that our finding is a result of welfare effects of a carbon tax being determined primarily by the source of a households’ income rather than by the destination of its expenditures.

The model in question is a Computable General Equilibrium (CGE) model, which should raise some alarm bells. To assess the impact of trade agreements and tax changes, some economists have used CGE models, which develop a system of equations to model the economy, then shock it with a policy change to look at impacts once everything settles. Unfortunately, CGE is a deeply flawed approach that incorporates all of the market fundamentalism of neoclassical economics. Moreover, they give the appearance of making empirical estimates when really what is being generated is a function of the assumptions being made. Here’s The Economist magazine on problems with CGE models:

[T]he results of CGE models flow from the presuppositions of their authors. Most empirical exercises confront theory with numbers—they test theories against the data; sometimes they even reject them. CGE models, by contrast, put numbers to theory. If the modeller believes that trade raises productivity and growth, for example, then the model’s results will mechanically confirm this. They cannot do otherwise. In another context, Robert Solow, a Nobel prize-winner, has noted the tendency of economists to congratulate themselves for retrieving juicy plums that they themselves planted in the pudding.

In this particular paper, what assumptions are notable? “The model is based on the principles of general equilibrium theory. It combines microeconomic detail to project agents’ behaviour with the requirement of market clearing” and “Markets for all factors are assumed to clear perfectly (i.e., there is no friction in any of the factor markets). Labour is treated as mobile between sectors in each region but immobile between regions, as is conventional.” Also: “For each region and each sector, nested constant elasticity of substitution (CES) cost functions describe the price-dependent use of capital, labour, energy and materials for the production of commodities other than primary fossil fuels. Producers choose to substitute between different inputs (labour, capital, different types of energy and materials) to maximize profits.”

With those whoppers as starting points, they shock the model with a simulated carbon tax, then conclude on distribution: “To sum up, the progressive character of the carbon tax is mainly caused by the greater decline in real wages compared to the relative increase in real capital earnings. Households in the higher income deciles are more dependent on labour income than households in the lower deciles, which means they are hit harder by the drop in real wages.”

So higher energy prices cause diminished economic activity and associated wage reductions, which disproportionately affect high-income earners, according to the model. For such a change in prices, however, it may also be the case that other low-carbon sectors are stimulated. Indeed, we know that capital investment in renewables generates more jobs per dollar as that invested in fossil fuels. And as a general note, there are both income and substitution effects for any price change, and these move in opposite directions. So it’s not obvious that the overall impact of a carbon tax is being modeled properly – there is a lot we do not know. But I suspect these results are an artifact of the assumptions in the model.

On the breakdown of income, transfer income is relatively more important to low-income households, capital income is relatively more important higher up the distribution. Some of the gain is attributed to transfer income being indexed to the CPI, compensating for higher energy costs. While this may be true for federal transfers like OAS and CCTB, it certainly is not the case for social assistance in BC, a transfer most relevant to this analysis.

But the real distributional problem is on the expenditure side: it’s hard to get around the prima facie empirical case that low-income households spend a greater share of their income on energy, and therefore get hit with a higher share paid in carbon tax. This paper seems like a lot of hand-waving to me. Given the track record of CGE models, a quasi-empirical approach that is highly driven by the assumptions being made, I suggest some skepticism. And such a paper can be problematic to the extent that it endorses carbon pricing initiatives that allow proponents to ignore distributional impacts.

IPCC doom, gloom and an LED light at the end of the tunnel

The latest from the Intergovernmental Panel on Climate Change is a super-synthesis of the state of agreed knowledge about climate change, adaptation and mitigation. Imagine thousands of research papers summarized in three major volumes (released over the past year), with this new report the grand summary of that. And even that condensed into a 40-page summary for policymakers.

Now I will humbly boil that down to a few key observations: climate change is happening and costs are piling up; it’s caused by human activity, primarily the combustion of coal, oil and gas; staying on our current pathway risks ever-greater danger of irreversible adverse impacts around the world; and, perhaps most importantly, we still have time for a soft landing if we act quickly.

To me, the most important concept advocated by the IPCC report is that of a carbon budget. There is a finite amount of carbon we can combust before we push into the really dangerous territory (aka 2 degrees C above pre-industrial levels). How big that global carbon budget is depends on your appetite for risk, but the IPCC says about 30 years worth of emissions at current levels would give a 2/3 chance of staying below 2 degrees.

I’m not crazy about those odds. It’s like someone telling you there is a 1 in 3 chance your house will burn down, and you would henceforth be homeless forever.

The key point is we need to establish a global carbon budget, and figure out how to divvy that up fairly so we can use our remaining fossil fuels to transition to a clean energy economy. This is a classic economic problem: how to allocate resources subject to a budget constraint, as the vast majority of fossil fuel reserves (66-80% globally) represent “unburnable carbon” that needs to stay underground.

To pull this off, it goes without saying we have to pull together. This is a cross-planetary collective action problem, which requires government regulation, taxation and public infrastructure spending. The IPCC concludes that the economics of this transition are favourable: there may be a minor dent in our GDP several decades out, but there would also be substantial co-benefits from action, such as better health outcomes.

The timing of this IPCC report matters like no other, coming out out a year before the crucial 2015 Paris meetings of the United Nations Conference on Climate Change, at which our leaders are to sign off on a new global treaty to constrain carbon emissions.

Or not. So far our leaders have been good at making grand promises about emission reduction targets way in the future, while not taking action consistent with meeting those targets. And the last time we got our hopes up from a new deal on climate, in Copenhagen in 2009, it was met with bitter disappointment, as governments could not find the political will to address the issue.

That said, there are glimmers of hope. This past September, we saw the largest march for climate action in history, with 400,000 in New York City and satellite marches around the world. Resistance to new fossil fuel infrastructure (like pipelines, LNG terminals, and coal ports) is making life difficult for fossil corporations. Divestment campaigns have popped up around the world. And the cost of renewable energy is now economical, even given the huge subsidies we provide to fossil fuel production and consumption.

To get on the right path, we need to overcome two things: the power and influence of fossil fuel companies, who have done a masterful job confusing the issue through denial campaigns, and getting their political allies into power; and the belief that collective action through our governments is detrimental to the economy.

This week’s historic accord between the US and China to reduce emissions is another good sign, and they join the European Union in pledging game-changing commitments ahead of Paris. Together, these three represent more than half of global emissions.

For Canada, this also means we must stop relying on what’s easy (digging up ever-more fossil fuel resources for export) and start rethinking “responsible resource development” as the strategic management of fossil fuel reserves in order to maximize shared prosperity, within the context of a carbon budget. The next federal election would be a great time to have this conversation.

So 2015 is shaping up to be a pivotal year, in Canada with a federal election, and for the world as a whole. People increasingly realize that climate change is not a distant possibility that might happen to polar bears 100 years on, but something that is happening now. Amid the gloom of the science on climate change lies the possibility for a tectonic shift in our economy and the politics of carbon. A bright green future is possible but we are going to have to work for it, together.


PS. Hat tip to CCPA Monitor editor Stuart Trew, who pushed me to write this, and who contributed the title.

Why the economy sucks (in one chart)

(The following is something I’ve prepared for the next issue of CUPE’s Economy at Work, a popular economics quarterly publication I produce.)

In his annual Economic and Fiscal Update (EFU), finance minister Joe Oliver told Canadians that while the federal government will finally record a surplus next year after seven years of deficits, we can’t expect the economy to grow much faster than the slow growth we’ve experienced since the financial crisis, with economic growth expected to average just 2.4% over the next four years.

Economic growth in this recovery is a third slower than in the recoveries of the 80s and 90s while job and wage growth has also been dismal. And despite all the spending cuts they’ve made, we also can’t expect the federal government to have much extra money because the additional tax cuts they’ve promised are eating up a lot of the surplus.

If we have a balanced budget and federal taxes have been cut to the lowest share of the economy in 70 years, why is out economy growing so slowly? It certainly isn’t because interest rates are low: instead they’re close to historic lows, so low they could fuel another asset boom and bust. It isn’t because businesses lack money to invest: they have a record $600 billion of excess cash they aren’t investing in the economy. It isn’t because we’re lacking labour: there are over 1.2 million officially unemployed with hundreds of thousands more underemployed.

So if everything is in place according to the Conservatives’ economic ideology—balanced budgets, low taxes, low interest rates, corporations flush with cash, excess labour, free trade, low wage growth—why does the economy suck?

The answer is right under Joe Oliver’s nose, in his department’s publications and media releases—and is illustrated with the chart below.

Read more »

Good Results from Latin American Elections (Guest Post by Paul Pugh)

Paul Pugh is a long-time progressive activist, trade unionist, and city councillor from Thuunder Bay, Ont., who has guest-written previous posts for us on economic policies in Uruguay. Here is a short report from Paul on the outcome of recent crucial elections in Latin America. Thank you Paul, and congratulations on your own re-election this week to Thunder Bay city council!

The re election of Dilma Rousseff was the most important event this past Sunday, as it enables continuation of the PT (Workers’ Party) direction within and outside of Brazil. This is very important for the region, as Brazil is by far the most important country. I’m still trying to analyze the legislative, state and municipal results. Brazil’s political parties and alliances are complex.

Uruguay also held national elections on Sunday. For the pres/vp ballot, the FA (Broad Front – left coalition) won 47.9%, just short of a majority, so there will be a second round Nov 30. The opposition Blancos (Whites) received 30.9%, and the Colorados (Reds – but not in the political sense) received 12.8%, the Independent Party 3.03%. So it looks good for Nov 30, but it’s not over until the ballots are counted Nov 30. For the legislature, the FA won 50 of the 99 Chamber of Deputies, and 15 of the 30 Senate seats – if the FA wins Nov 30, it will have a majority in the Senate, as the VP has a senate vote. The FA also enlarged its base in departmental governments (like provinces), from 11 (in 2010 election) to 14, of the 19 departments. So, Uruguay confirmed its support for the FA.

The election of Chile’s Bachelet (and majorities in both chambers of the legislature), Evo Morales’ huge win for a 3rd consecutive term in Bolivia with corresponding majorities for his party MAS (Movement for Socialism), Dilma’s re election in Brazil, and Uruguay’s re election of the 3rd consecutive FA government bodes well for the region.

Minimum Wages and Employment Outcomes

Last week my Unifor colleague Jordan Brennan and I published a study through the CCPA Ontario office examining the historical empirical evidence regarding the link between changes in minimum wages and employment outcomes.  We find there is no robust evidence in Canadian historical data that increases in real minimum wages cause either lower employment or higher unemployment, even when we focus on key segments of the labour market that are most reliant on low-wage labour (including youth and the retail and hospitality sectors).

The full study, titled Dispelling Minimum Wage Mythology: The Minimum Wage and the Impact on Jobs in Canada, 1983–2012, is available hereRead more »

Economics 101

On October 21, Chris Ragan wrote a column for the Globe and Mail titled “In defence of Economics 101.”  The link to his column is available here.

On October 24, Marc Lavoie, Louis-Philippe Rochon and Mario Seccareccia replied to him.  The link to their response is available here.

Bank of Canada, Exports, and LMI

Much has been made about Stephen Poloz’s decision to abandon ‘forward guidance’ in Bank of Canada rate setting announcements for the time being. Critics bemoan the loss of direction from the Bank. But Poloz’s comments yesterday were chock full of guidance on how the Bank sees Canada’s economic situation.

Having been disappointed by the failure of Canada’s export sector to resume investment or show any signs of life, researchers at the Bank investigated the performance of 2,000 product categories, and found that about 500 of those had very nearly been wiped out following the 2008 – 2009 recession. Further investigation found a permanent loss of capacity in some manufacturing export sub-sectors. Most surviving manufacturing exporters are still operating at or below capacity. This means we shouldn’t expect a whole lot of business investment in these sectors any time soon.

This permanent loss of capacity isn’t truly permanent, we can rebuild, but doing so will take more time, and will wait until conditions are much more certain. This has disastrous consequences for workers, particularly in southern Ontario where much of the loss has been located.

Stephen Poloz’s statement is clear on this. The size of the output gap is somewhat deceptive because of this loss of capacity. A clearer picture of the weakness Canada is experiencing shows up in the labour market gap. Which the Bank very carefully measures, by the way. The Bank’s aggregate LMI diverged from the unemployment rate in late 2012. TD Economics put together their own aggregate labour market indicator, that also shows the labour market is weaker than the unemployment rate shows.

This might be the perfect time for some public infrastructure investment (as recommended by the IMF), say, in affordable childcare spaces.

The Troubled Economics, and the Curious Politics, of the Canada-Korea Trade Deal

There are many motivations to explain the Harper government’s rush to sign free trade deals.  Since coming to power, the Conservatives have implemented 6 FTAs, have “concluded” 2 more (with Korea and, purportedly, with the EU), and have fully 14 other FTA negotiations on the go. Read more »

The Novel Observations of Jean Tirole?

French economist Jean Tirole has won the 2014 Nobel Prize in Economics for his work on industrial organization and regulation, in particular his insights into oligopolies.  “Who is Jean Tirole?,  many non-economists and some economists are asking today.  The MIT-educated, Toulouse-based professor is a key figure in the New Industrial Organization (IO) movement.  The movement, with its roots in the 80s ,  sought to formalize IO, drawing heavily on new tools provided by game theory.  I first came across Tirole’s name as the author of The Theory of Industrial Organization (1988),   the main textbook prescribed in the grad level IO course that I chose not to take in 2000.  However, as I now scramble to get quite familiar with the IO of banking, I can appreciate an  overarching insight of Tirole’s: there is no general theory of IO or regulation!  Every industry is different; they are dynamic and require regulations or competition policies that address their particular conditions.

But Tirole’s contributions don’t end there.  In the hours since the announcement by the Nobel committee, news and blogs have been rife with summaries of the essential Tirole.  Yet as I digest these, I can’t help recall a passage written by the late Mark Blaug in a 1998 Challenge article:

In the field of industrial organization, which has been more systematically invaded by game theory than any other branch of economics, its principal effect has been to pour old wine into new bottles.  It is difficult, nay, impossible to think of a single novel observation that has come out of the “new’ industrial organization infuse by game theory that was not already part and parcel of the “old” industrial organization based as it was on the so-called structure-conduct-performance approach to business behavior.”

Blaug goes on to compare an old-style textbook like Scherer and Ross’ “Industrial Market structure and Economic Performance” (1990)  and Tirole’s 1988 text, asserting that “there is nothing of substance in the latter that is not also in the former and indeed  there is much less substance in the latter than in the former.”

So, as we scurry to get up to speed on the latest dismal scientist to get named to the hall of fame, it may be worthwhile to consider the whole history of industrial organization, with its pioneering theorists of imperfect competition, such as Joe Bain , Edward Chamberlain and Joan Robinson.

Job Numbers Surprise

For the first time in a while, Statistics Canada gives us some good news on the job front. 74,000 net new jobs added in September, certainly nothing to sneeze at. Still, we would need to keep this pace up every month for the next year to close the employment gap left by the last recession.

On the graph below, this month’s huge uptick barely makes a dent. The blue line is how many jobs we have, and the dotted pink line is how many we would have if the employment rate were 63.6%.



This holds true for workers age 15-64 as well, but in terms of total employment is a bigger issue for men (it is still a he-cession). The potential job growth lines (shown as dotted lines on the graph), are based on pre-recession employment rates. A year and a half ago, women were very close to their potential employment rate, but the trend has fallen off a bit since then.actualvspotential

More women work part-time than men, for various reasons, but it’s often to accommodate unpaid care work or because they can’t find full-time work. The number of men and women working part-time involuntarily is higher this September than it’s been in a month of September since 1997.


And for young workers who are new to Canada, there has been no recovery.  In the chart below I compare actual and potential employment for the months of September since 2006. To graph potential I use both the Canadian born young worker employment rate, and the new Canadian young worker employment rate.


Overall, recent immigrants have seen fewer jobs return. The unemployment rate for recent immigrants (less than 5 years) stood at 13.7%, compared to 6.5% for Canadian born workers. We don’t just need to create jobs, we need to create good jobs, and they need to be available to everyone.

Labour market musings

Just a short post ahead of the job numbers that come out from Statistics Canada tomorrow. Five years after the end of the last recession, and Canada’s labour market is still limping along. And it seems to have taken a turn for the worse recently.

While the Conservative government crows about one million net new jobs, they conveniently forget to mention that we would need to add another 880,000 new jobs to the Canadian economy to catch up to our pre-recession employment rate.

On average, that’s about 73,000 jobs per month, every month, for a whole year. This is unlikely to happen given our current job creation trends. Over the past year, we’ve added fewer than 7,000 jobs per month, which is only about one-tenth of what we need to put unemployed Canadians back to work.


And as we always hear, demographics matter. Here’s what that chart looks like for men and women between the ages of 15 and 64.


We’re short 300,000 full-time jobs for workers 15-64. In other words, in order for the employment rate of working age Canadians to return to its pre-recession level, we need to add 300,000 full-time jobs in that age category.

That’s half the number of jobs that went missing in the depth of the recession, but double where we were a year and half ago. The situation is getting worse, not better.



Another issue of growing concern is the continued high rate of long term unemployed workers (highlighted by today’s PBO report on EI).

CANSIM Table: 282-0047

CANSIM Table: 282-0047

Just a few things to keep in mind when you’re reading the labour market analysis tomorrow, whatever the monthly numbers say.


A guest blog post from Louis-Philippe Rochon:
This short note is aimed at graduate students and faculty members alike who are looking to get their papers published in academic journals, a crucial exercise for the job market, but also in getting tenure and promotion. Our advice is based on our collective experience as editors with more than 70 years of experience, but also on the many reviews we see on a daily basis. These reviews contain valuable information and surprisingly, reviewers often mention the same reasons for giving a paper a negative review or even rejection. Of course, while the information contained herein won’t guarantee acceptance, we think these tips will increase your chances considerably. As editors, we enjoy what we do, we enjoy reading new submissions, and working with authors. So here is our advice, in no particular order. 
Compiled by Louis-Philippe Rochon, Co-editor, Review of Keynesian Economics.
With the support of  

Valentin Cojanu, Paul Davidson, Alicia Giron, John Harvey, Eckhard Hein, Heinz D. Kurtz, Jack Reardon, Steve Pressman, Louis-Philippe Rochon, Allesandro Roncagalia, Barkley Rosser, Neri Salvadori, Malcolm Sawyer, and Mario Seccareccia.


1. Paper length

Please read the journal guidelines for submission, which are usually explicitly stated on the webpage. Make sure your paper is no longer than the suggested length. Most journals aim for papers between 7,500 and 8,500 words. The reason is that publishers impose strict limits on the number of pages in each journal issue, so the longer the paper, the fewer articles we can place within a single issue. Some journals may accept longer papers under specific circumstances (such as literature reviews for instance), but to be on the safe side, don’t send in papers longer
than what is suggested.

Also, some journals may have a minimum length requirement. Papers too short may get desk rejected. Lastly, a few journals have no limit per se, so it is always important to familiarize yourself with the specifics of the journal where you are sending your paper.

2. Graphs and tables

If your paper contains graphs and tables, five things are important to remember. First, make sure they are your own; or if you took them from elsewhere, you obtained the permission for reproduction and the proper reference is given. Second, for both tables and graphs, please label them properly by indicating precisely in what units the
variables being depicted are measured.  Third, unless the journal is an online journal only, the vast majority of journals are published in black and white and, thus, be sure not to submit multi-coloured graphs. Fourth, it is sometimes useful for reviewers to have knowledge of the actual data used to generate the graphs or tables. Our advice is to attach also an accompanying file containing the actual data set. Fifth, remember that each table and graph takes up space. In general, the publisher assumes that they take up about 300 words of space, each. So make sure you add that to your calculations of word-length. If your paper has 10 tables or graphs, that comes up to
about 3,000 words of space, and leaves you only with about 4,500 words.

3. The quality of the English

Often, papers are either poorly written or the English is not sufficiently polished. This may be the case if your first language is not English and you are submitting your paper to an English journal (and even when English is your mother tongue). Although as editors we welcome ideas from across the globe, unfortunately, poorly written papers,
will almost always receive a bad review from the referees, and in some cases, a desk reject. It is not the responsibility of the editors or the proofreaders of the journal to correct bad writing. Some editors will offer some editing advice, but it is really your responsibility to ensure the quality of the English. Please, get your paper re-read by someone who has a good command of the English language. Also, keep in mind that if you need help with your writing, there are professional editors who do this for a living. It is a good investment for those needing help with the English. We recommend reading The Elements of Style by William Strunk and E.B. White; it is a great little with book with lots of useful advice.

4. Mathematical Equations

If your paper is technical to some degree, please make sure you revise your math equations carefully. In addition to the two reviews, some journals may get your paper read by a third reviewer whose principal task is to peruse the math.

5. References 

Make sure that the list of references contains all works referred to in the text and that you cite all works that are pertinent. You must not give the impression of being unaware of the relevant literature and perhaps even of missing out some of  its most important pieces. And make sure that you obey the criteria of good academic behavior by not plagiarizing etc.

6. Plagiarizing

Plagiarizing is a serious offence. Obey criteria of good academic behavior, and don’t plagiarize. The consequences go
well beyond publication. But there is another type of plagiarizing, which is often not discussed but is receiving increasing attention: self-plagiarizing.

You must never copy and paste from your own articles. You should also reference yourself when presenting an important argument, if it has been made elsewhere. Note that some editors could well report plagiarism to academic authorities.

7. Only submit to one journal at a time

It is very important that you never submit your paper to more than one journal at a time. If found out, this can have severe consequences, such as being banned from submitting to the journals in question for a period of time. Editors invest time and energy in managing the review process. So you must wait for the decision from one journal before ending it to another. Also, be aware of what you are signing up to when making on-line submission, e.g. guaranteeing own work, not submitted elsewhere.

8. Abstract and key words

The first thing editors and referees read is the abstract of your paper. Some authors think that the abstract is something unimportant and therefore don’t invest much time and attention in its composition.  They are quite wrong. The abstract is representative of your work, and if the former is shabby it speaks badly about the
latter. In the abstract emphasize in particular the importance of the problem under consideration and the novelty and innovativeness of your paper.

Don’t forget to add key words. This is important for several reasons; chief among these is that with on-line submissions, the referee search is done through key words.

9. Ensure your paper is in its final form

This may come as a shock, but some editors receive papers with unfinished sentences and quotes, and even with
personal notes that the author inserted, intending to get to them later. The reviewers will write back that the paper is
unfinished and should never have been submitted. So, once again, take the time to re-read your paper carefully before submitting it to a journal. Don’t expect editors and referees to do your work for you. And remember the opportunity cost for editors is high and you have one  chance to impress!

10. Make sure your paper is anonymous

Most journals have a double-blind review process. This means the authors don’t know who is refereeing their paper, but referees do not know who the author is. To keep the anonymity, make sure your paper is free of any possible ways of identifying who you are. If the paper was presented at a conference, please remove the information.
Also, remove any acknowledgement. This information can all be put back once the paper is accepted.


11. Have a strong introduction

Your introduction should make your intent clear. Often, reviewers will indicate how the introduction has little to do with the rest of the paper. And it should stress what is new compared to the existing literature on the problem under consideration. Also try to keep your introduction to two or three simple, succinct paragraphs. Remember an
introduction is an introduction—you can elaborate in the main body.

12. Make a strong argument

Remember that an academic paper is an argument; your goal is to convince the reader. Be very conscious about this.
Reviewers are very busy, so the easier you make it for them to read your paper and understand the arguments you are making, the better.

State the thesis clearly in the introduction to give the reader an idea of how you are going to support it, and stick to it. Avoid tangents: no matter how interesting they may appear to you, tangents are tangents and serve to confuse your audience. Define concepts clearly and build careful transitions that leave the reader enthusiastic for the next step, not discouraged by the fact that they are not longer following your argument. You are not writing this paper for
yourself, it’s for the readers (and referees and editors!).

A number of websites are dedicated to how to write academic papers, and more specifically on how to write them for
economics. Google “How to write an academic paper in economics” to find a number of sites.

13. Avoid redundancies

Develop your argument in a straightforward way. Don’t meander around and give the impression of not knowing what your task is. Avoid redundancies, which quickly tend to bore referees.


14. Rewrite and resubmit

It is rare that a paper will get accepted “as is”, that is with no modifications. It is also common for papers to be rejected. All of us as editors have had papers rejected, so we know what it is like.

In general most papers will require some changes demanded either by the reviewers or the editors. Editors then can still reject the paper, or ask for a “rewrite and resubmit” or an R&R. This usually means that the editor sees potential in the paper, but that it is not quite ready for publication. An R&R means that potentially, the paper could be published eventually, and that the editor is interested in working with you to get it published. While it is not a guarantee for publication, it is nonetheless one important big step closer. It is in your best interest to rework the paper and follow the suggestions made by the reviewers.

In addition, the editor may give you some extra advice: it is strongly suggested that you follow this advice. The Editor is trying to help you; and keep in mind that we like what we do—we wouldn’t be doing it otherwise!

If you choose to rewrite the paper, send along a letter with the revised version indicating point by point how you dealt with the reviewers’ comments. This will help the reviewers considerably in assessing the revised version.

Of course, if you disagree with some comments made by the reviewer, this is fine, but indicate in the letter why you
disagree, and how you dealt with it in the paper. Maybe you need to strengthen the argument.

15. Editor’s decision

The editorial decision can be based on a number of reasons. For instance, your paper may simply have not been
appropriate for the journal. While the editor may often detect this upon submission, this is not always the case.
Also, while your paper may be technically correct, it can be considered ‘run of the mill’. Since acceptance rates can hover around 20-25%, decisions have to be based on criteria such as innovativeness.  For example, a paper which in effect takes a model previously applied to country X or Y and then applies it to country A may be suitable to be included in an edited book, but may not make it into an academic journal publication.

16. Don’t argue with the editor

If the Editor gives you an answer, don’t argue with him/her. Yes, the review process is not the best and often mistakes are made. Editors have to rely on reviewers who have more expertise in the sub-field of the paper than the editors. If you believe a serious error was made by the reviewer, it can be worth pointing this out to editor. But before doing so, it would be worth consulting others to see whether they agree with you. If you raise the issue with
the editor, do so in a polite way, don’t be aggressive, and don’t threaten to never send another paper again.

In the end, accept the final decision that is given. Keep in mind that it is often difficult for an editor to make such decisions, especially when dealing with friends and colleagues. Editors must place the interest of the journal above all else.

17. Frequency of contact with the editor

Once submitted, do not contact the editor frequently in anticipation of referee decisions. Journals rely essentially on volunteer work and the process may sometimes take several months. On the other hand, if you have not gotten
feedback after six months, it would be appropriate to ask if there are any developments, since your paper may well
have fallen through the cracks. Yes, this can happen. Finally, don’t try putting pressure on the editor by saying ‘my tenure decision depends on my paper being accepted’. It is not the editor’s job to ensure you get tenure.

18. Ask advice

Finally, don’t hesitate to ask the editor for some advice, even before you submit the paper, and especially if you don’t understand the reviews. Often, reviewers will contradict each other, and the editor may offer you guidance in what to focus on. The editor will be more than happy to help you interpret the reviews.


19. Get involved and offer to help

Offer to serve as a referee before you submit to a journal: finding good referees is not easy. And if you are sent an article to review, do a good job and do it by the deadline given to you. Of course, this won’t guarantee a future paper of yours will be accepted, but you always want to be on the good side of the editor. Refereeing well is one way to do this, and in many cases this is how we nominate people to our editorial boards.

Good Luck! And we look forward to reading your submissions!

The Editors: 

VALENTIN COJANU,  Founding Editor,  Journal of Philosophical Economics

PAUL DAVIDSON,  Founding Co-Editor Emeritus,  Journal of Post-Keynesian Economics

ALICIA GIRON, Editor, Problemas del Desarrollo

JOHN HARVEY, Editor, Real-World Economics Review

ECKHARD HEIN, Co-editor, European Journal of Economics and Economic Policies: Intervention

HEINZ D. KURZ, Co-editor, Metroeconomica

STEVE PRESSMAN, Co-editor, Review of Political Economy

JACK REARDON, Founding Editor, International Journal of Pluralism and Economics Education

LOUIS-PHILIPPE ROCHON, Founding Co-Editor, Review of Keynesian Economics

ALLESANDRO RONCAGLIA, Editor, PSL Quarterly Review and Moneta e Credito

BARKLEY ROSSER, Founding Editor, Review of Behavioral Economics

NERI SALVADORI, Co-editor, Metroeconomica

MALCOLM SAWYER, Editor, International Review of Applied Economics

MARIO SECCARECCIA, Editor, International Journal of Political Economy

Who’s afraid of free trade with Europe?

The prospect of freer trade with European nations is generally popular among Canadians. And why shouldn’t it be? Doesn’t the Canadian left repeatedly point to the advantages of many European social and economic institutions? Who could argue with lower prices for European cheese, wine, or chocolate?

After all, we’ve been waiting for years for the Canadian economy to pivot to export-led growth, and how can we do that without free trade deals. This is the government’s line. (Even though classical economic theory would say that trade deals are meant to benefit consumers, not exporters).

Well, there are a number of reasons to be concerned about the Canadian-European Comprehensive Economic Trade Agreement (CETA). The first one is that it isn’t just a trade deal. Sure, it eliminates the already low non-agricultural tariffs between Canada and the EU.

And if it stopped there we wouldn’t be having this conversation.

But when advocates think a major selling point of the agreement is that: “It’s not just a trade agreement. It reaches into other regulatory areas and areas of social and economic policy”, we’re going to want to have a chat with some policy makers.

The CCPA has gathered analysis of CETA’s leaked text from a wide range of experts, to help make sense of the CETA. I’ve summarized some of the key issues below.

Investor State Dispute Resolution

The most problematic element is the level of protections that investors receive under the CETA. These investor protections effectively constrain the ability of governments at all levels to introduce new regulations or new public services. Scott Vrooman, a comic who also happens to be a trained economist, humorously summarizes the problems with Investor State Dispute Mechanisms nicely in video and written formats, suggesting that Countries are Second Class Citizens under modern international trade agreements.

Under CETA an international body bypasses national courts, and can make decisions that apply retroactive financial penalties to governments. Compare this to the labour and environment chapter, which allows for a transparent but completely unenforceable dispute resolution process. This process is little more than high-level peer pressure, which we know to be a super effective tactic with our current Conservative government.

Food Security

One of the wins for Canada under CETA is increases in the quota of pork and beef that Canadian producers can sell into Europe. There remains considerable doubt about the ability of Canadian beef producers, in particular, to make use of the higher quotas. Canada is not able to fill our current quota of hormone free beef to the EU, let alone be in  a position to take advantage of expanded quotas.

On the other hand, rules around procurement may threaten the increasingly popular “eat local” programs in many municipalities, schools, hospitals, and prisons. Local procurement of food is considered to be an important driver of local food security, as well as a key regional development policy, and part of reducing Canada’s carbon footprint. The threshold for ‘sub-central’ entities is $330,000 CDN, much lower than current restrictions under NAFTA.

Indigenous Rights

Since Canada has pledged to endorse the UN Declaration on the Rights of Indigenous Peoples (UNDRIP), the federal government must consult with Indigenous Peoples. There is no question that an agreement as all-encompassing as CETA requires the government to receive Free, Prior, and Informed Consent from Indigenous Peoples whenever Indigenous rights may be affected. The level of secrecy around the process in negotiating CETA makes it very difficult to determine if any effort has been made by the federal government to even consider their responsibilities to Indigenous Peoples.

Maritime Services

Trade agreements are notoriously dense and difficult to parse, even when one has access to the official text and supporting documents. Maritime services is one example of a “surprise” found in the leaked final text of CETA.

During CETA negotiations, maritime industry players were assured that ‘cabotage’ would be left untouched by the agreement. Cabotage is a technical term that means “the movement of goods or passengers between two ports or places within a single state”. Effectively, ships carrying goods between two Canadian ports must be registered in Canada and adhere to Canadian labour and safety standards. CETA starts to dismantle this, in allowing European shipping from Halifax to Montreal.

As the official text of CETA is released there will certainly be more surprises.

Public Services

Trade deals are about tariffs, right? The benefits are lower prices and better choices for consumers. If that is true, then why would a free trade agreement handcuff future governments in their ability to introduce new public services?

The CETA is negotiated under a ‘positive’ list rule, which means that any exclusions must be specifically listed. If you forget to list something, or something ‘new’ is created, then it automatically comes under the full weight of CETA. The ‘positive list method is new to Europeans, and touted as ‘modern’ by Canadian and American trade negotiators.

This means that if a future federal government wants to introduce a public pharmacare or childcare program, they may face investor challenges under CETA. Or worse, future governments may abandon the idea of useful regulations and new public services altogether, because it will simply be too difficult.

This is what the CETA is meant to do – tie the hands of future governments to implement the will of the people. That’s not what a trade agreement is should be allowed to do. No one is afraid of trade. We’re afraid of corporate rights superseding democracy.

Is Harper right? Did corporate tax cuts really pay for themselves?

In a little noticed comment, Prime Minister Stephen Harper recently was reported to say:

“Dropping our tax rate has not caused the government’s corporate income tax revenues to fall, which indicates that it does in fact attract business.”

No one seems to have questioned his statement, even though it was made on the same day Canada dropped to 15th place on the World Economic Forum’s index of global competitiveness from 9th in 2009.   These rankings show corporate tax rates bearing little relationship to measures of global competitiveness.

Harper’s statement puts him squarely in the company of the “Lafferites” and neo-conservatives who claim cuts to tax rates even at relatively low levels can pay for themselves by increasing economic activity and tax revenues.

The “Laffer curve” charts the relationship between tax rates and revenues.  A tax rate of zero will obviously generate zero revenues while a rate of 100% also won’t generate a lot of revenue either. Revenue-maximizing tax revenues are achieved at rates somewhere between these extremes.

While all economists acknowledge this relationship exists, there’s a lot of disagreement about where the revenue maximizing rate and how steep the curves are.  Progressive economists tend to agree revenue-maximizing tax rates are higher, while some neo-conservatives claim tax cuts even at low rates will increase revenues 

Early advocates of these type of tax cuts argued that lower tax rates would increase economic activity and thereby revenues.  However, there’s little evidence changes in tax rates, except in more extreme cases, have a major impact on real economic activity.

Advocates of tax cuts also argue that cutting taxes can generate increased revenues from income and tax shifting.  Individuals and companies can shift their income between jurisdictions or between different forms of income to take advantage of lower tax rates. The Prime Minister indicated this is what he thought happening when he said Canada’s lower tax rate was attracting business, no doubt with the recently-announced takeover of Tim Horton’s and merger with Burger King on his mind.

So is it true: have tax cuts actually led to higher revenues?  Can we keep our Timbits and eat them too?

Read more »

Liberal’s EI Plan Rests on Bad Math

Joe Oliver recently announced a Small Business Tax Cut, sorry, Job Credit. Economists across the ideological spectrum denounced it as poorly designed.

This opened up an interesting opportunity for a national debate about what we want E.I. to be – coverage right now is at all time lows, and the accumulated deficit from the last recession will soon be repaid in full.

The Liberal Party entered the EI debate by suggesting a one-year EI premium holiday for employers who hire new workers. It’s disappointing that they completely ignored the possibility of expanding access. What’s even worse is that their plan rests on some pretty terrible math.

How much do they think a one year EI premium holiday for new hires will cost? Why, they can create 176,000 jobs for the low price of $225 million / year.

Sure, you say, the maximum EI contribution for employers is around $1250 / year, and 176,000 * $1250 = $225 million. No problem.

But, wait! How do you define new job? And how many ‘new jobs’ are created in the Canadian economy in any given year? You might think that it’s in the 176,000 range if you listen to any of the coverage of the Labour Force Survey release at the beginning of every month. But you’d be wrong.

The Labour Force Survey counts ‘net new jobs’, which is the the number of new hires minus the number of job leavers in a given month. Between August 2013 and August 2014, there was an average of 6,000 net new jobs every month.

But the total number of new hires is much larger than the number of net new jobs. People leave one job for another, and move into and out of the labour force regularly.

Although Statistics Canada doesn’t measure new hires directly, it does ask “how long have you been in your current job?”. We can say that people who answer “1 month or less” is a pretty good proxy for new hires. By this metric, there were approximately 3.7 million new hires in 2013. That’s 310,000 per month.

The Liberals will have blown through their annual budget for the EI premium rebate about two weeks after it has been introduced.

This plan confirms two things. The Liberal Party of Canada is totally OK with an EI coverage rate of 36%, and they aren’t really sure how the labour market works in Canada.