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The Progressive Economics Forum

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

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

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

Read more »

Grocery Wars: Lessons from Canada’s Changing Retail Landscape

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

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

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

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

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

Harper Conservatives vs the IMF on Deficits

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

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

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

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

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

Low-carbon urban infrastructure: a view from Vancouver

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

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

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

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

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

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

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

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

ROCHON On Greece once More


Associate Professor, Laurentian University

Co-editor, Review of Keynesian Economics

Follow him on Twitter @Lprochon


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Will Nova Scotia Implement a Carbon Tax?

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

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








NS Electricity Mix










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

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

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

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

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

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

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

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

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

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

Stay tuned to see what happens in Nova Scotia.

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

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

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

BC job market_Small

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

Confusing “Deficit Elimination” with “Prosperity”

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

G20 meeting of world finance ministers too little too late

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

By Louis-Philippe Rochon

Follow him on Twitter @Lprochon


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

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

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

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

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

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

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

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

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

So why are governments not spending more?

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

So why not do it again?

There are two obstacles:

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

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

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

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

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

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

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

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

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

Rethinking social protections in the age of contractors

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

ROCHON: Greece, Syriza and the Euro

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

Follow him on Twitter @Lprochon.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Poilievre promoted to employment minister

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

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

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

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

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

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

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

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

January Job Gain Part-time, Self-employment

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

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

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

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

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

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



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

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

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

You can follow him on Twitter @Lprochon

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rochon Asks: “Is the Canadian economy unraveling?”

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

The link to the blog post is here.

Follow him on Twitter @Lprochon.

Seccareccia on Greece, Austerity and the Eurozone

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

The interview can be read here.

Responsibility for Housing

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

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

2. Which level of government is responsible?

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

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

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

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

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

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

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

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

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

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

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


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


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

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

Read more »

PEF 2015 Student Essay Competition

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

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


➢ 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.