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Is your pension in climate denial?

Fossil fuel divestment campaigns have become a focus for climate change organizing, targeting university endowments, churches, foundations and pension funds. While the motivations are primarily moral—if it is wrong to wreck the climate, it is wrong to profit from that wreckage—there are important economic arguments for divestment.

If we are to have a reasonable chance at staying below 2°C of global warming – the target for international negotiations – between two-thirds and four-fifths of proven fossil fuel reserves (those already near development) will need to stay underground, forever.

This situation is even more dire for Canada due to our economic reliance on fossil fuels, plus our high costs of production. Figure 1 from our new report, Pension Funds and Fossil Fuels: The Economic Case for Divestment (co-authored with Justin Ritchie), presents a cost curve ranking of future oil production around the world, from lowest to highest cost, mapped against various estimates of a global carbon budget.

In a world of constrained carbon, the lowest-cost reserves are likely to be developed first. Canada is a relatively high-cost producer, with Canadian heavy oil projects (in green) requiring a breakeven price of $70-85 per barrel. To meaningfully address climate change, a large share of Canada’s bitumen reserves cannot be developed.

Screen Shot 2015-11-17 at 11.52.01 AM

Institutional investors, including some pension funds, are increasingly aware that fossil fuel company business models are not compatible with a habitable planet. But this is not reflected in the annual reports of Canadian public pension funds, which don’t mention climate change as a material risk to pension sustainability.

In effect, Canadian pension funds have been living in a form of climate denial through their major holdings of fossil fuel stock, and are thus exposed to risks from new policies to address climate change. Integrating an understanding of climate policy risk that includes the potential for new regulations, carbon pricing, emission caps and unburnable carbon reserves is a logical next step in the conversation on sustainability within the pension world.

In addition to climate policy, a number of other risk factors could turn today’s fossil fuel stock into tomorrow’s stranded assets:

  • Commodity price risk – As we have seen since mid-2014, low commodity prices have shelved new investment in Alberta’s oil sands, and hit the bottom lines of companies. We estimate that the accompanying drop in share prices amounted to a loss of $5.8 billion for Canada’s top 20 public sector pension funds. 
  • Energy innovation risk – The cost of renewable electricity generation in recent years has fallen close to fossil-fuel-based energy. Renewables, plus conservation and energy efficiency, may be better poised to meet new energy demand.
  • Carbon liability risk – The link between carbon emissions and damages is evolving, and as Governor of the Bank of England Mark Carney recently commented, it is possible we will soon see fossil fuel producers held liable for damages. This is similar to tobacco companies being sued for health damages resulting from use of their products. A new investigation of Exxon’s climate denial practices by the New York Attorney General also points towards future litigation.
  • First Nations and community opposition risk – Fossil fuel mega-projects are facing delays and opposition wherever proposed. Enbridge’s Northern Gateway and TransCanada’s KeystoneXL pipeline projects are the most recent to get shelved due to popular protest. Even though the previous federal government had approved the Enbridge pipeline, legal challenges from affected First Nations meant it was unlikely the project would ever get built.

In this context, the concept of fiduciary duty needs a rethink. Because of the long-term planning horizons of pension funds, climate change must be taken seriously by trustees, and funds must equally represent the interests of young workers for their eventual retirements.

Divestment from fossil fuels is, in our opinion, consistent with fiduciary duty. But funds can and should also play a transformative role in building and scaling up the green infrastructure needed for a zero-carbon world. Infrastructure requires up-front capital investment with a return paid out over decades, which aligns well with the needs and long-term horizons of pension funds. A great deal of that money will need to come from the public sector through vehicles such as green bonds.

We recommend a four-point plan: (1) higher standards of disclosure so there is daylight on fossil fuel holdings; (2) carbon stress testing to clarify the risks associated with fossil fuel holdings, and develop criteria to evaluate best and worst performers; (3) engagement with companies about their capital expenditure plans; and, (4) developing a process for divestment from fossil fuels and re-investment in green alternatives.

* Thanks to Justin Ritchie for his excellent research in support of this report.


Ten Things to Know About the Challenges of Ending Homelessness in Canada

On November 18, I gave a presentation on “ending homelessness” at the 7 Cities Leadership Summit in Edmonton. My PowerPoint slides can be downloaded here.

Here are ten things to know about “ending homelessness” in Canada:

1. In 2008, Calgary became the first Canadian municipality to publicly commit to “ending homelessness.” More than a dozen other Canadian municipalities have since followed suit, with Medicine Hat’s Mayor recently claiming that his municipality has indeed “ended homelessness.” Such plans have the potential to raise awareness and focus collective efforts to develop new practices focused on ending homelessness. I think one reason Alberta communities have adopted such advocacy approaches stems from the successful use of similar advocacy campaigns in the United States. Speaking at a Toronto conference in 2009—and drawing on successful homelessness advocacy campaigns in the United States—Nan Roman said: “By saying the problem keeps getting worse, we weren’t getting resources. By focusing on solutions, we got more resources.” Put differently, speaking positively (and demonstrating positive outcomes) can result in more resources being committed to fighting homelessness; and I think that’s been an important reason that many advocates in Canada have developed “ending homelessness” strategies.

Read more »

Progressive, pro-family, pro-growth

A good parental leave system makes children more affordable, and improves gender equity in the labour force and at home.

In Quebec, parental leave innovations include time reserved solely for the father, higher replacement rates, and flexibility. This has dramatically increased the number of fathers taking parental leaves, which in turn has a long-term impact on the distribution of labour within the home. (It may also have contributed to Quebec’s shrinking pay gap – which is happening at a time when the gender pay gap in the rest of Canada is stagnating.)

While it is clear that “use-it-or-lose-it” parental leave for fathers will nudge more of them to take leave, research shows that higher replacement rates make a difference as well.

A Statistics Canada review of European parental leave programs shows that take-up rates for parental leaves are lower where replacement rates are low.

“since men, on average, earn more than women, families may be dissuaded from having the father claim parental leave because of the greater financial burden (Moss and O’Brien 2006).”

This is why I was so excited to see the Newfoundland and Labrador NDP propose  a substantial top-up to parental leave (from 55% to 80%), paid from provincial coffers. The province is facing a declining birthrate, and has been hard-hit by the falling price of oil.

This is exactly the kind of policy that supports families in their choices, but works against the structural economic forces that disadvantage women. Bravo, NL NDP for a well-designed, feminist & progressive policy.

Let’s hope other provinces are paying attention.

Who’s Afraid of Deficits?

We all knew that Budget 2015 was optimistic about medium term growth and rebounding oil prices, but the good people at the PBO have given us an indication of just how far off those projections were.  They estimate that nominal GDP will be about $20B lower through 2020 ($30B lower in 2016), which also means bigger government deficits through 2020.

While pundits had been OK with small, temporary deficits, at this news some headlines shouted that the Liberal’s plan to balance the budget was in jeopardy, and others contemplated the possibility that the new government would be less bold in the face of economic weakness.

Of course that is exactly the wrong response, and gladly McCallum pointed out the obvious, that this news “is something that underlines the need for the job-creating infrastructure investments”.

There has emerged a mainstream consensus that deficits / surpluses don’t matter so much, that a better yardstick of fiscal sustainability is our debt-to-GDP ratio. So what does yesterday’s news mean for this indicator?

Assuming the Liberal government fully implements the investment promises in its platform and the PBO projections are correct, the debt-to-gdp ratio is still projected to fall by 3 percentage points between now and 2019/20. In fact, the ‘modest’ deficits proposed in the Liberal platform only add 1 percentage point to the debt-to-GDP ratio over this timeframe, which translates into an increase of about $42B in debt between 2015/16 and 2019/20. (And, all of this assumes that there is no short term stimulative effect from the proposed spending either.)



Let us look at the increase in spending/borrowing over the 2015-16 to 2019-20 timeframe that would result from targeting various debt-to-gdp ratios.

Assuming the PBO projections for GDP growth are correct, the federal government could borrow more than twice as much over the next four years – $86B – and the debt-to-GDP ratio would still be lower than when they took office.



Given that the economic news has worsened, a case should be made for increasing spending. Even though we aren’t in a recession any more, we are facing a period of what Armine calls “slowth”. Demographic shifts, among other things, are limiting our economic potential.  Investments should target medium to long term growth, and meet basic needs that have fallen through neo-liberal cracks – such as clean water for First Nations communities.

There is more than enough room for increased investment, even given mainstream economic constraints.

Five Things to Know About Pre-1964 Canadian Housing Policy

On November 4, I gave a historical presentation on Canadian housing policy at the annual conference of the Canadian Alliance to End Homelessness. My slide presentation, which focused on pre-1964 Canadian social history, can be downloaded here.

Here are five things to know about pre-1964 history that set the tone for important developments in Canadian housing policy:

  1. Prior to the 1940s, there was virtually no government-assisted housing for anyone at all in Canada. In the early 1900s, if you were without work and needed help paying the bills, you typically had to rely on family or friends for assistance. In some cases, a social welfare agency might provide you with time-limited support (i.e. used clothing, food, fuel); in other cases, a local church might help you. But barring any of those options, you likely faced destitution.

Read more »

Cinq choses à savoir sur la politique du logement au Canada, avant 1964

Le 4 novembre, j’ai fait une présentation sur la politique du logement au Canada, lors de la Conférence nationale pour mettre fin à l’itinérance. Ma présentation (qui a porté sur l’histoire sociale canadienne avant 1964) illustrée de diapositives, peut être téléchargée ici.

Voici cinq choses à savoir sur l’histoire avant 1964, période qui a donné le ton à des développements importants dans la politique du logement au Canada:

  1. Avant les années 1940, il n’y avait pratiquement pas de logements subventionnés par le gouvernement au Canada. Dans les années 1900, si on était sans travail et avait besoin d’aide pour payer les factures, on devait généralement compter sur sa famille ou ses amis. Dans certains cas, un organisme de protection sociale pouvait fournir un soutien limité dans le temps (par exemple, des vêtements, de la nourriture, de l’essence); dans d’autres cas, l’ église pouvait aider. Sans cela, on était probablement confronté par l’indigence.

Read more »

Economics for Everyone, 2nd Ed.: Book Tour!

The second edition of Economics for Everyone: A Short Guide to the Economics of Capitalism was co-published by Pluto Books, the Canadian Centre for Policy Alternatives, and Fernwood Publishing this summer.  With the federal election now safely behind us, I am pleased to announce a series of book launch events in 4 cities.  Details are below; each event will feature a talk by me, Q&A, reception, and book-signing.  Many thanks to the CCPA offices in each location which are hosting the tour, and to Unifor for its ongoing support.

The book will be available for sale at each event, $25, all proceeds go to the CCPA.  (It can also be ordered on-line through the CCPA here.)

See you there!

Vancouver, Sunday Nov. 15: 6 PM, Heartwood City Cafe, 317 E.Broadway

Winnipeg, Tuesday Nov. 24: 7 PM, Neechi Commons, 865 Main Street

Ottawa, Thursday Nov. 26: 5 PM, 25onecommunity, 251 Bank Street

Toronto, Friday Dec. 4: 5 PM, Chestnut Room, Sheraton Centre Hotel, 123 Queen Street W.

Election 2015 and the Battle of Economic Ideas

I am not a member of a political party. I recognize the importance of elections, participate in election campaigns (including canvassing and raising money for good candidates), and engage heavily in election-related debates (like the detailed critique of the Harper government’s economic record I co-authored, with Jordan Brennan, for Unifor). But I am skeptical of the motivations and opportunism of electoral parties, perpetually disappointed by their cynical and often unprincipled actions, and unwilling to compromise what I think are clear and important progressive ideas for the sake of a party’s “brand.”  I have concluded that the most effective contribution I can personally make to social change is to focus on the ongoing intellectual and ideological contest over what sort of economy and society is desirable and attainable.  That ongoing “battle of ideas,” not the quadrennial battle of party logos, is what ultimately determines our trajectory as a society. Read more »

Some missing elements from the Canadian TPP debate

With an agreement reached on the Trans Pacific Partnership, the 12-member trade and investment treaty, opinions began swirling about what the deal means for the future of Canada. Plenty of facts have been bandied about in an effort to clarify the TPP’s significance: 12 Pacific Rim countries, 800 million people, 36 percent of global GDP and 25 percent of global trade, among others. But what do these facts mean? They don’t tell us a thing about what will happen once the agreement comes into force. If the speculation of Canada’s punditry is to be believed, the TPP will do the following. By reducing tariffs and opening Canada’s borders to increased foreign competition, domestic producers in tradable sectors will be compelled to innovate or lose market share. Increased innovation will lead to higher productivity and better and/or more competitively priced products, which will elevate exports, and consequently, boost GDP growth. This line of reasoning leads some to conclude that the TPP is a ‘big win’ for Canadian commercial statesmanship. Why does Canada’s intellectual class believe that the TPP is coterminous with economic progress?


Since the early nineteenth century, (many) economists have argued that liberalizing trade between countries produces mutually advantageous outcomes, even in the extreme case where one country produces all of the traded commodities more efficiently than the other. David Ricardo’s doctrine of ‘comparative advantage’ and the Heckscher-Ohlin model of international trade are the two most historically influential arguments for trade and investment liberalization (TAIL hereafter). Despite their logical coherence, both theories were abstract rationalizations generated through a process of deductive reasoning. Neither theory was anchored in empirical fact or economic history. But if we are to infer the likely consequences of the TPP we have to turn to Canada’s actual experience with TAIL.


With Canada’s entry into a North America-wide TAIL regime in the late 1980s and early 1990s, tariff schedules were reduced and trade increased, though it must be stressed that tariffs had been on the decline for a full century before the Canada-US Free Trade Agreement came into effect in 1989. Did reductions in the North American tariff schedule lead to the surge in Canadian exports in the 1990s? Figure 1 contrasts Canadian exports with the relative value of the Canadian dollar. Unsurprisingly, when the Canadian dollar devalues, domestically produced commodities become relatively cheaper and more of them are demanded by foreign customers (mainly American). And because the value of the Canadian dollar tracks commodity prices, the commodity super-cycle downturn of the 1980s and 1990s led to a devalued Canadian dollar and soaring exports. With the commodity super-cycle going into an upswing after 2000, the Canadian dollar appreciated and exports plummeted, despite Canada’s commitment to liberalized trade.


The Canadian Dollar and Canadian Exports

Source: export percent of GDP from World Development Indicators (code: NE.EXP.GNFS.ZS); exchange rate from Bank of Canada via Cansim Table 176-0064.


Since coming to power in 2006, the Harper Conservatives have signed TAIL agreements with dizzying speed. And while they might produce great photo-ops, they have done little to boost exports. Agreements have been signed with Peru, Columbia, Honduras, Panama, Jordan, Ukraine and Korea. In 2014 an ‘agreement in principle’ was reached on the CETA and now, in 2015, the TPP. During this time, the export share of GDP shrank from 36 percent to 32 percent and the content of Canada’s exports shifted from a more industrially diversified mixture of commodities to non-renewable resources. If history is any guide, the TPP will not signal greater exports, contrary to the expectations of Canada’s punditry.


What impact will the TPP have on Canadian prosperity? It has been (roughly) a quarter century since Canada entered into a TAIL regime with the United States. In the 25 years to 1988, the rate of growth of business investment in fixed assets averaged 4.8 percent per year, private sector employment grew at a rate of 2.4 percent and GDP per capita grew at 2.8 percent. All three growth rates were halved in the period since 1988, falling to 2.4 percent, 1.3 percent and 1.2 percent, respectively, and the average unemployment rate increased from 7.1 percent to 8.1 percent between the two periods. The claim that ‘free trade’ is a prosperity-enhancing policy rests on shaky ground (to put it politely).


So even though the conventional narrative is that tariff reduction leads to heightened international trade (‘open borders’ being synonymous with ‘globalization’) and elevated trade enhances prosperity, the evidence from Canada suggests no such thing. Canadian exports fluctuate with the exchange rate and the so-called ‘free trade era’ has not led to accelerated growth. The problem with the conventional narrative is this: it’s not entirely clear that globalization is primarily about the cross-border movement of commodities. If it was about trade, then the rapid fall in Canadian exports since 2000 would signal de-globalization (and therefore policy failure). While a part of the North American TAIL regime was undeniably geared towards tariff reduction and enlarged trade flows, the other, more significant, aspect of the agreement was a shift in the property regime to facilitate the globalization of Canadian corporate ownership abroad. Trade is about the cross-border movement of commodities, whereas investment is about ownership. Theoretically speaking, trade has falls under the auspices of industry and production, whereas investment is more closely aligned with property and distribution. And by altering the property regime in a way that strengthens the social position of business, the TPP will reorganize power within and between TPP countries.


Before examining the globalization of Canadian business ownership, consider for a moment the changing structure of Canadian business investment in the TAIL era. Investment has two main pathways: proprietors can pay to have new industrial capacity built (via fixed asset investment) or they can buy existing industrial capacity on the market for corporate control (mergers and acquisitions). The former activity is closely associated with job creation and GDP growth. The latter activity (M&A) is wholly and only an act of redistribution—transferring legal titles between business owners—that is statistically unrelated to GDP growth. A ‘buy-to-build’ indicator captures this basic calculus open to proprietors and it is plotted for Canada in Figure 2. For each year it measures the dollar value of Canadian M&A as a percentage of business spending on fixed assets.


Canadian Corporate Amalgamation

Source: See Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 6, p. 33. Available online at:


The narrative around the development of M&A from the late 19th to the early 21st centuries is one of a series of ‘waves’, each leading to different organizational forms and market structures. Figure 2 clearly depicts the wave-like pattern of M&A over the past century. It also depicts the increasing importance of M&A relative to investment in industrial capacity, especially in the TAIL era (post-1990). In the three-quarters of a century from 1914–1988, for every dollar spent on building new industrial capacity, Canadian business spent an average of 23 cents on M&A. In the quarter-century since 1988, for every dollar spent on expanding industrial capacity, an average of 93 cents was spent on M&A—a four-fold increase. Figure 2 tells us, among other things, that Canadian business investment has been radically restructured since 1990.


Figure 3 contrasts the export of Canadian commodities with the export of Canadian corporate ownership claims (both series are smoothed as three-year moving averages to ease the visual assessment). The former divides total exports by GDP and the latter is computed as the sum of dividends on portfolio investment plus dividends, reinvested earnings and profit on foreign direct investment as a percent of total pre-tax corporate profit. When this metric rises, the profit from the foreign operations of Canadian-based firms are increasing relative to the profit from domestic operations, and vice versa. This is a loose proxy for the transnationality of Canadian corporate ownership. The transnationality proxy clearly depicts the rising significance of the foreign operations of Canadian corporations. Exports and transnationality rose together from 1960 through 2000, but the relative value of exports went into reverse thereafter while the transnationalization of Canadian corporate ownership continued to increase. This is significant. It shows that globalization has not gone into reverse; it has proceeded apace, but commentators are looking at the wrong variable. The globalization of Canadian trade may be on the decline, but the globalization of Canadian corporate ownership has soared to a historic high.


Exporting Commodities vs Corporate Ownership Claims

Note: data for the transnationality index are interpolated between 1928, 1933, 1936 and 1938 (continuous thereafter). Series smoothed as 3-year moving averages. Source: See Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 2, p.20. Available online at:


For Canada, ‘globalization’ has primary meant the internationalization of Canadian business ownership, not elevated trade. Canadian investment has been dramatically restructured in the TAIL era, with much less going toward the expansion of industrial capacity (fixed asset investment) and much more going toward business consolidation (M&A). Are these two processes, M&A and the globalization of corporate ownership, related? Figure 4 contrasts the buy-to-build indicator with the proxy for the transnationalization of Canadian corporate ownership (smoothed as three-year moving averages). The two series are tightly and positively correlated from the 1920s onward. The timing and duration of the amalgamation waves appears to have contributed to an increase in the foreign operations of Canadian-based firms relative to their domestic operations. The amalgamation waves of the 1990s and 2000s were primarily global and, unsurprisingly, the transnationalization of Canadian corporate ownership sharply increased over those two decades.


Amalgamation and the Globalization of Canadian Ownership

Note: data on corporate transnationality interpolated between 1928, 1933, 1936 and 1938 (continuous thereafter). Series are smoothed as three-year moving averages. Source: See Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 8, p. 33. Available online at:


Note: small and large firms alike expand industrial capacity and increase employment, but corporate amalgamation is a game initiated almost exclusively by large firms. And given that the bulk of Canadian investment abroad is held by a small number of firms (ranging in the dozens) it follows that the drive by large firms to enlarge earnings compels them to acquire firms in other jurisdictions. In their theory of globalization, Jonathan Nitzan and Shimshon Bichler argue that there is a logical progression to this acquisition process, with large firms first merging in their industries, ‘breaking the envelope’ into broader sectors and then pushing up against national boundaries through the formation of nationally-embedded firms. The final ‘envelope’ being the national political economy, if large firms are to continue to expand they require a new universe of takeover targets—hence the need for a global merger wave (i.e., globalization). The flurry of TAIL agreements in the industrially advanced world since the 1980s has facilitated and secured the expansion of Canadian corporate ownership abroad. This is the driving force behind globalization. Large firms need to grow, but because they have saturated profit opportunities within their domestic sphere they require a fresh batch of takeover targets in foreign jurisdictions. This is also why most ‘free trade’ agreements actually have so little to do with trade. Their purpose is to facilitate and secure international investment (i.e., ownership).


If the causal sequence outlined here is correct, it follows that the internationalization of Canadian corporate ownership should be closely associated with increased power amongst Canada’s largest firms. Aggregate concentration is one way to measure the overall power of big business. Twentieth-century political economists began to notice that price behaviour in concentrated markets with a few large firms differed from price behaviour in competitive markets with many small and medium-sized firms. Institutional power seemed to explain the difference. We know that large firms are more likely to lead M&A activity than small firms. We also know that Canadian direct investment abroad is almost exclusively conducted by a small number of very large firms. Does it follow that corporate amalgamation is linked with corporate concentration?


Figure 5 contrasts Canadian corporate amalgamation with the concentration of corporate assets, the latter measured as the total assets held by the top 60 firms as a percent of the Canadian corporate universe. The two series are tightly and positively intertwined over half a century, which supports the contention that amalgamation is a key driver of concentration. Asset concentration among the largest 60 firms rose from 27 percent in the early 1960s to 37 percent in the early 1980s, before falling to 30 percent in 1990. Over the next decade, and in tandem with the largest merger wave in Canadian history, asset concentration increased by one-half. As of 2010, the top 60 firms accounted for 46 percent of all corporate assets—a startling degree of concentration.


Amalgamation and Corporate Asset Concentration

Note: total corporate assets are tabulated by subtracting the assets of government financial and non-financial business enterprises from the assets of government and business enterprises. The top 60 firms are ranked annually by market capitalization. Source: Brennan, J., 2015. Ascent of Giants: NAFTA, Corporate Power and the Growing Income Gap. Ottawa: Canadian Centre for Policy Alternatives, Figure 10, p. 41. Available online at:


So what’s missing from the TPP debate? Recognition that, despite reducing tariff’s (which are already insignificant), the agreement is unlikely to lead to heightened exports. The heavy emphasis on investment provisions, regulatory harmonization and government policy restrictions reflect the fact that the TPP is meant to secure the expansion of dominant Canadian commercial interests in the Pacific Rim. This has little to do with ‘international competition’ or ‘free trade’. And the macroeconomic outcome for Canadians can in no way be assumed to be positive, given how weak Canadian economic performance has been since 1990. Make no mistake: the TPP will deepen Canada’s experience with ‘globalization’, just don’t count on it to have a positive effect on exports, jobs or GDP growth.


Also missing from the TPP debate is the drive for power by large firms. Corporate amalgamation not only leads to the internationalization of Canadian business ownership; it concentrates corporate assets. Increased concentration reduces competitive pressure, thickens earnings margins and enlarges the income share of large firms. With an enlarged income share, Canada’s leading firms have distributed comparatively more resources to shareholders in the form of dividends. And with the rise of stock options in the 1980s, executives were given an incentive to divert resources into share price-inflating stock repurchase. Both developments have exacerbated personal income inequality in Canada. And because investment in fixed assets is a key driver of GDP growth, the diversion of corporate resources away from industrial expansion has put downward pressure on growth. Given the deep historical facts, the likely effects of Canada’s entry into the TPP are slower growth and elevated inequality.


Jordan Brennan works as an economist for Unifor, Canada’s largest labour union in the private sector. He is also a research associate with the Canadian Centre for Policy Alternatives. A more fulsome treatment of this subject can be found in his CCPA study, Ascent of Giants. Follow him on twitter:

Election 2015: Congratulations, Erin Weir!

The massive change dealt by Canadian voters to the seating arrangement in the House of Commons last Monday has seen the 3rd party Liberals leap to a majority government, sending the incumbent Conservatives across the aisle to the Official Opposition bench and the once-hopeful NDP back to the 3rd party seats.  In addition to the disappointment of being reduced from 95 seats to 44 seats, the loss of several talented parliamentarians  was particularly stinging for the NDP.  Debate in the House of Commons will be less with the absence of Megan Leslie, Paul Dewar, Peter Stoffler, Peggy Nash, among others.

Fortunately, this apparent new era of sunny days contains some rays of light for the NDP.  One such ray is the election of Erin Weir to represent the constituency of Regina-Lewvan.  Erin is the past chair of the Progressive Economics Forum, winner of the PEF student essay contest (twice!) and consummate PEF blogger.  Presently an economist for the United Steelworkers, Erin has worked previously for the Canadian Labour Congress and the Government of Canada (including stints in all three central agencies – Privy Council, Finance and Treasury Board).

Erin won his Regina-Lewvan by 143 votes, a squeaker of a race and a testament to the importance of a tenacious team of staff and volunteers who made sure Weir supporters made it to the polling station.

His election comes at an important time as members of the weakened NDP reflect on its discouraging electoral performance, analyze what went wrong (and right) and chart its future course, both in holding the government to account and preparing for the 2019(?) election.  A key issue that must be evaluated is the NDP’s 2015 campaign tactic of committing to balance budgets.  Although this couldn’t have been predicted at the beginning of the campaign, the Liberals clearly outflanked the NDP in this regard.  In this period of critical reflection, Erin finds himself in unique position of being both a member of the NDP caucus and a member of the Progressive Economics Forum.  Let’s wish him luck!

Election 2015: Liberals in a Hurry, Budget Policy and Time to Plan

Wow!  What an upset!   A Liberal majority!   From 35 seats to what are they projecting … 185!?

If the Liberals outflanked the NDP on progressive economic policy, it was on a single issue, that of budget policy.  With the Liberals promising three years of budget deficits to finance infrastructure spending and the NDP committing to four years of balanced budget (while introducing $15 a day childcare financed by corporate tax hikes), it seemed Lester Pearson’s famous quip had been turned on its head:  Liberals as socialists in a hurry?

Looking beyond this evening, here how’s things may play out over the next year, once the celebrations have drawn to a close.

  • October 19 to December 31, 2015: transition. Trudeau’s cabinet will named and staff, including advisors, will be hired.
  • January, 2016: The 42nd Parliament will commence with a throne speech, outlining the Trudeau vision for governing Canada.
  • February-March, 2016: A “thin” budget will be presented, probably featuring the promised cut to the “middle class” tax bracket.

What is important to keep in mind is that March 31, 2016 is the end of the 2015-16 fiscal year and the fiscal position will likely be in deficit.  This deficit is unfolding as I post this: with slow growth, including a contraction in the April to June 2015 quarter, less tax revenue is coming in, while spending, including what is paid out through the “automatic stabilizers” like EI, remains unchanged if it is not growing.   Congratulations, Prime Minister Trudeau, you have recorded your first deficit without having to lift a finger.

A consolation for Tom Mulcair, with his commitment to a balanced budget, is that he will now not have to figure how to square this circle had he formed the government.

  • March-November, 2016: Planning.

The period leading up to the fall 2016 economic update, if the Trudeau government chooses to have one, will be a critical one as it will allow the government to formulate its economic policy vision for its four years of governing.  It was in such an update in the fall 2006 where the Harper Conservatives unveiled Advantage Canada, its economic policy blueprint, that guided government policy, until the 2008 financial crisis upended that plan.  Here, we can expect to see details on the new discretionary spending programs featured in the Liberal campaign platform.

Unlike Tom Mulcair, who was rather vague about when the NDP would roll out its spending programs over the next four year, Justin Trudeau has been rather adamant about immediate public spending, such as on public transit infrastructure.  However, there are good reasons to not rush these spending initiatives, but instead take time to design and plan.  The Liberals do not need another procurement scandal like the Sponsorship imbroglio, but this could happen if contracts are rushed out the door and land in the laps of loyal Liberals.  Another consideration is that many of the Liberal spending promises, such as on infrastructure, require the cooperation of governments at the provincial and municipal levels.  Such consultations take time.  When was the last time there was a First Ministers conference?  Trudeau the Younger should avoid cues from Trudeau the Elder in this respect.

All is to say, with the intent of this new government to be more active in the economy, there are good reasons to take time to plan and get it right.  We’re not in a sharp crisis like in late 2008.  It is the longer term trend, this stagnating trend,  that needs to be addressed.

Good luck, Mr. Trudeau!

Empty Conservative Rhetoric on Pipelines

Letter to the editor in today’s Regina Leader–Post (page A10):

A Tory Stunt

The Oct. 9 photo accompanying the story “Tory candidates laud pipeline industry” showed pipe produced at Evraz stored outside the fence of another company, where this Conservative campaign stunt was held.

The story did not mention that the company concerned uses pipe imported from China, which does not support employment at Evraz in Regina. The story did correctly report, “The candidates did not make any new announcements in regards to new projects or investments.”

Certainly, the Conservative government has not done anything to prevent Chinese steel producers from exploiting unfair competitive advantages by undercutting internationally recognized labour and environmental standards. The new Trans Pacific Partnership trade deal negotiated by the Conservatives in secret during the election campaign will facilitate importing pipe from Japan and Korea, as opposed to manufacturing pipe in Canada.

NDP leader Tom Mulcair has consistently supported a west-east pipeline, subject to a proper environmental review process. Unlike proposals running west or south from the Alberta oilsands, a pipeline going east would have the capacity to transport Saskatchewan oil and keep refining jobs in our country.

The Conservatives offer nothing but photo ops and empty rhetoric about pipe manufacturing jobs. By contrast, the NDP’s fair trade policies would limit the dumping of steel from offshore into the Canadian market, encouraging the use of pipe produced in Regina.

The NDP has better policies to support good Canadian jobs and is the only party that can replace Conservatives in Regina.

– Ken Neumann is Canadian national director, United Steelworkers

Fiscal and Economic Record of Political Parties

A version of this originally appeared in rabble.

Conservative ads have focused on the NDP’s fiscal and economic record, claiming that the “NDP Can’t Manage Money”. These include another round of staged interviews with people who repeat “the NDP can’t manage money”, “the cost of their plans is huge”, that “business will be under attack”, they’ll be “reckless spenders” and “my family can’t afford the NDP.”

These lines feed into a central Canadian and media stereotype of NDP governments as reckless spenders and taxers. Meanwhile early polls reported that Canadians trust Tom Mulcair and the NDP more than any political leader and party when it comes to economic issues.  Who’s right on this issue?

I examined the records of all provincial and federal governments from as far back as consistent data are readily available (1981) against relevant major fiscal and economic indicators. The results may be quite surprising. NDP governments have been far more “fiscally responsible” overall than either Conservative or Liberal governments. They also rank on top for a number of other key economic indicators, including lowest unemployment rates, highest real wage growth, and–surprisingly–highest growth in corporate profits.

Read more »

#HarperEconomy: From Worst to … Worster?

As this marathon election campaign enters its final days, it is interesting to look back on the evolution of the economic debate during the past 11 weeks on the hustings.  The Harper Conservatives once again tried to play the “economic card,” claiming their policies are essential to Canada’s future growth and prosperity.  But this time, that argument did not resonate with voters.  Indeed, opinion polls indicate no significant gap remaining in public perceptions of the economic credentials or credibility of the three major parties. Read more »

Election 2015: Trudeau’s Court of Economic Advisors

“I don’t read newspapers, I don’t watch the news.  I figure, if something important happens, someone will tell me.”

Justin Trudeau’s surprising confession in a 2001 Globe and Mail essay (“Something I’m Passionate About”, Feb.3) raises three questions: 1)  does he read newspapers and watch the news now?; 2) if yes, does he read the Report on Business, Wall Street Journal and the Financial Times or watch BNN, CNBC, or at least CBC’s Bottom Line? ; 3) if no to question 2, who tells him when something important is happening in the Canadian economy?

This last question is particularly important as many Canadians this election are increasingly seeing Mr. Trudeau as the leader in progressive economic policy change.  Who has provided, and continues to provide the advice that has informed an election platform that includes three consecutive years of deficits, tax cuts for the middle class and immediate investments in infrastructure?  That task seems to have fallen to Trudeau’s Economic Council of Advisors, unveiled last December.

Members include: Scott Brison (former Bay Street investment banker), Chrystia Freeland (Thomson Reuters business journalist), John McCallum (former bank chief economist), Ralph Goodale (former finance minister under Paul Martin), Kevin Millligan (UBC prof and CD Howe fellow), Barbara Stymiest (former TSX Group CEO) and Frank McKenna (former NB premier and recently chair of the TD Financial Group).

Quite a Bay Street team tasked with fulfilling the Main Street dream!

Of further puzzlement is the apparent endorsement of immediate government borrowing to finance infrastructure investment by both David Dodge (who as Finance Deputy Minister, helped orchestrate Paul Martin’s “Hell or High Water” austerity budgets of the mid-90s) and Kevin Lynch (who as Clerk of the Privy Council, was an architect of Stephen Harper’s Advantage Canada and Economic Action Plans).

This time it’s different, eh, David and Kevin?

The pedigree of this court of economic advisors conjures skepticism about what further progressive policy advice will flow from this court of advisors.  For example, what’s in store in year 4 (the balanced budget year) of a Liberal government after three years of “investing now for Canadians”.  Back to 1995 for an austerity budget?  I hope someone is advising Mr. Trudeau of this political risk in an election year.




Election 2015: An Escape Hatch for the NDP?

In an earlier post, I sought to explain (not necessarily defend) the Mulcair team’s decision to run balanced budgets as an election campaign tactic to counter being branded by the Conservatives (and potentially the Liberals)as a profligate manager of the public purse.  Whether or not this tactic is successful will ultimately reflect in the October 19th electoral results.

Since this announcement in late August, polls have suggested the tactic may not have worked, with the NDP having being overtaken by the Conservatives and Liberals in terms of share of the popular vote.  It does not strictly follow that these polling trends will translate into the seats necessary to form a majority for any party, especially for the Liberals, who will have to gain an additional 134 sears to form the government, from the 36  seats they held at dissolution.  Another consideration is the extent we can have confidence in any  polling results given the deterioration of a reliable sampling frame with the rise of cell phone use over land lines.

However, let’s consider three possible electoral outcomes for the NDP: an NDP minority government supported by the Liberals, a Liberal minority government supported by the NDP  (minority governments being not uncommon in Canadian politics) and a coalition government between the NDP and Liberals (rare in Canadian history but can’t be ruled out).  In all three scenarios, it is plausible to imagine the NDP relinquishing their campaign promise of balanced budgets in order to cooperate with the Trudeau team.  This would provide an escape hatch from the corner the Mulcair team has seemed to paint itself into with this campaign commitment of not one, but four consecutive balanced budgets.  While a shrewd campaign tactic, the commitment makes the NDP vulnerable to three political risks: 1) the risk of alienating part of its support base, and having this contribute to its defeat on Oct 19; 2) assuming the NDP forms the government, the risk of making an economic policy error by sticking to balanced budgets, when in fact the government should have run deficits to achieve its policy goals;  3) the risk being punished in 2019 for breaking an election promise when an NDP government changes its position and runs deficits (recall George H.W. Bush’s “read my lips, no new taxes” in 1992).   The possibility of a minority or a coalition between the NDP and the Liberals  (and this is a real possibility, according to Nanos Research) would help the NDP avoid these three risks.

Beyond this issue, a larger question that has emerged (for me at least) is: what is this election about for Canadian voters?  Unlike the 1988 election campaign, where free trade became the defining issue, this election is a rapidly  moving discussion in the 24/7 news cycle, with few apparent anchors.  What about the economic policy debate beyond the “ balanced budgets vs budget deficit” issue?  Wasn’t it about how we treat refugees in this country?  What about corruption and Senate?  Climate change, anyone?  Does Canada’s reputation abroad matter?  How has citizenship and values moved up the middle?  Is the niqab the defining issue of this moment for Canadians?

First Nations Education is critical social infrastructure

Many Canadians know that the federal government is responsible for funding social services, health care, education and income supports on First Nations reserves.

Few people realize that the escalator for these transfer payments has been frozen at 2% per year since 1996, without consideration for population growth or need.

According to the Assembly of First Nations, by 2011 this resulted in an average funding gap of $3,500 per student in First Nation schools compared to per student funding in provincial schools.

Funding Gap

This operational funding gap is on top of a physical infrastructure funding gap for resources such as libraries, computer labs, or supports for First Nations languages.

This is particularly egregious given low high school completion rates, high risk of suicide, and the fact that half — 50% — of First Nations children live below the poverty line.

This should be a collective shame for Canadians and a key election issue.

Conservative Track Record

In 2014, the Conservative government made a commitment to First Nations education that consisted of $1.25 billion in core education funding over three years, $500 million in infrastructure funding over seven years, and $160 million to implement the plan. (See Budget 2014, pg. 76).

This money was contingent on the passage of the controversial First Nations Education Act (Bill C-33).  A centralization of control in the hands of the Minister of AADNC concerned many First Nations communities, the bill was withdrawn, and the money promised for elementary and secondary education was never spent.

Budget 2015 made more modest promises, committing $200 million over 5 years to “improve educational outcomes”, and keeping the $500 million in infrastructure funding over seven years. (See Budget 2015, pg. 294)

The commitment of $1.25 billion in core education funding for First Nations communities vanished in Budget 2015, and in fact had never made its way into Department planning documents because the bill (C-33) never passed the House. (Budget 2014 had earmarked the money to start in FY 2016-17).

Election 2015 Promises

The New Democrats have yet to fully detail their platform on First Nations education, but the Liberals have promised $2.6B over the next four years for education funding.

It turns out that only 900 million of this is new funding, the rest depending on Budget 2014’s commitment of $1.25B that appears to have evaporated from Budget 2015’s fiscal framework.

Liberal Fiscal Framework

Budget 2015 only shows an annual investment of $40 million for First Nations Elementary and Secondary Education ($200 million over 5 years).

If it turns out that money *is* sitting around on someone’s desk at the Treasury Board, that would be great, because this funding is sorely needed to close the education funding gap for First Nations communities. But Parliamentary appropriations documents, including the department’s Report on Plans and Priorities and Treasury Board’s Main Estimates, suggest that this is not the case.

Rebuilding Social Infrastructure

Our current debt in social infrastructure has been ignored for too long. The Federation of Canadian Municipalities has put out good numbers on the current municipal infrastructure debt, but no one has done something similar for social infrastructure.

Along with investments in early childhood education and care, repairing the funding gap to First Nations schools would go a long way to eliminating that social debt for future generations. Ask your local candidate for their party’s position, and after the election, keep pushing. It’s too important to ignore.

Too Early to Call Recession Over

Statistics Canada is reporting a 0.3% increase in monthly GDP for July, on top of a (downward revised) 0.4% increase in June. This will no doubt spark Conservative politicians, and many economists, to declare that the shallow recession which Canada experienced in the first half of 2015 is already over.

As recently as last week, Finance Minister Joe Oliver was still denying the existence of the first-half recession.  Read more »

Taking credit where it’s not due

On the election’s climate file, Prime Minister Harper has claimed that his is the “first government in Canadian history that has actually been able to see a reduction in our greenhouse gas emissions while at the same time seeing the economy grow.” This is very much a case of claiming credit where it is NOT due, from a Prime Minister who is only pretending to care about the issue amid the spotlight of the election campaign.

First, it depends on which dates you choose. If we look at Canada’s GHG emissions going back to 2005, the last full year before Harper became Prime Minister, Canada’s emissions fell by 23 million tonnes of CO2, or 3%, as of 2013, the last year for which we have data. But if we consider the impact of the 2008-10 Great Recession, we see that GHG emissions fell alongside the economy, bottoming out in 2009. Since then Canada’s emissions have grown every year between 2009 and 2013.

Second, many provinces have taken on climate action initiatives in the absence of federal leadership. The Government of Ontario, in particular, has done much heavy lifting by phasing out coal-fired power. This alone reduced Canada’s emissions by 23.6 million tonnes between 2005 and 2013 – equivalent to the national drop. Total emissions in Ontario actually fell by more – 40 million tonnes – over the same time frame, due to additional hit to manufacturing industries from the recession.

Third, federal “leadership” has been in the opposite direction of climate action. PM Harper has pushed relentlessly to enable the expansion of fossil fuel industries, including pressing for pipelines, gutting environmental protection, removing opportunities for public comment, even spying on environmental groups. Although unsuccessful in getting new pipeline capacity online, GHG emissions from fossil fuel production in the Conservative heartland are way up: Alberta’s emissions grew by 33 million tonnes since 2005, a 14% increase; Saskatchewan emissions grew by 5 million tonnes, up 8%. [Note: data tables for Canada and provinces available here]

The PM’s claim of a sector-by-sector regulatory approach is also fiction. No sectoral regulations have emerged for oil and gas, the source of 1/4 of the country’s industrial and commercial emissions, despite being promised repeatedly. In transportation, Canada is merely following the US lead on fuel efficiency standards for vehicles. The only other area of note is coal-fired power regulations, which contrast with provincial actions like Ontario’s – regs apply to new plants, but exempt existing plants from regulation until they are 50 years old. A broader recap of climate and energy policy in the Harper Decade is available here.

On the economy, the PM’s preference for small government and balanced budgets has, if anything, been a drag on growth. Going back seven years when the financial crisis hit, the PM rigidly clung to a notion of a balanced budget, which would have made the crisis worse. Only when faced with losing power to a NDP-Liberal coalition did a stimulus package get implemented in the 2009 budget. That stimulus package was under-funded, then flipped into a multi-year advertising campaign for the Conservatives, paid for by taxpayers, with Economic Action Plan signs on the ground and ads on TV.

Canada’s economy has stalled in 2015 after a period of “slowth” (my colleague Armine Yalnizyan’s term for weak growth). The latest obsession with presenting a balanced budget for the electorate has led to many cuts in recent years, again a drag on growth. The federal government has left most of the action to the Bank of Canada and low-interest-rate monetary policy, while abdicating counter-cyclical fiscal policy.

Ironically, because GHG emissions are linked to GDP growth, PM Harper’s failure to get GDP rolling is probably his best shot at claiming some credit for Canada’s GHG performance.


Memo from Washington: The Pope’s Call for Climate Action

To start his US tour, the Pope stated that “climate change is a problem which can no longer be left to a future generation. When it comes to the care of our ‘common home,’ we are living at a critical moment of history.” Speaking on behalf the poorest people – those who will be most adversely affected by climate change, but have done the least to cause the problem – the Pope’s message is a powerful moral call to action.

Can this call overcome cultural and political barriers to change? In the near term, the push for a new climate treaty in Paris represents a key decision point for the planet. The Pope’s encyclical, released in June, surveys the science on climate change, then comments:

“It is remarkable how weak international political responses have been. The failure of global summits on the environment make it plain that our politics are subject to technology and finance. There are too many special interests, and economic interests easily end up trumping the common good and manipulating information so that their own plans will not be affected.”[para 54]

These words may sound familiar to observers of Canadian politics when it comes to climate change. Election 2015 has so far offered up a soft form of climate denial, with the three main political parties at best talking in vague terms about reducing greenhouse gas emissions, while endorsing plans that would dig Canada ever deeper into fossil fuel production and export.

The encyclical saw it coming: “Consequently the most one can expect is superficial rhetoric, sporadic acts of philanthropy and perfunctory expressions of concern for the environment, whereas any genuine attempt by groups within society to introduce change is viewed as a nuisance based on romantic illusions or an obstacle to be circumvented.” [para 54]

In its challenge to the status quo, the Pope has more in common with the Leap Manifesto‘s vision of “a country powered entirely by truly just renewable energy, woven together by accessible public transit, in which the jobs and opportunities of this transition are designed to systematically eliminate racial and gender inequality.”

As foreshadowed by the encyclical, the Leap Manifesto’s call for leadership and action was largely dismissed by mainstream elites, who apparently see no problem with the truly radical proposal of pumping ever more of Canada’s abundant fossil fuel reserves into the atmosphere.

The good news is that this path is becoming increasingly difficult to tread. The collapse of commodity prices, which has exposed Canada as a high-cost producer, is a shot over our bow. In a carbon-constrained world, most of Canada’s reserves will need to remain underground, undeveloped.

On the ground, new pipelines and other fossil fuel infrastructure are meeting opposition wherever they are proposed. Enbridge’s Northern Gateway Pipeline, approved by the Harper government in spite of massive protest, may never get built in the face of opposition by local communities and First Nations. For Canada-US relations, a central issue of tension has been the delay, and possible rejection, of the Keystone XL pipeline.

Parallel to protests and blockades, a new movement has sprung up demanding institutional divestment from fossil fuel energy (and corporations) and re-investment in clean technologies. A new report totals up divestment commitments from 430 institutions and 2,040 individuals across 43 countries at $2.6 trillion in assets.

The cost of renewable energy has come down substantially and is increasingly competitive with fossil fuels. It is widely recognized that we have a political problem not an economic or technological one, and that the costs of acting are less than the costs of doing nothing.

Even leaders of the Group of 7, earlier this year, agreed to phase out fossil fuels by 2100. Canada was “successful” in defending its perceived interests by deferring the date from 2050, the target proposed by Germany. If made into a national priority, rich countries like Canada could get there in a generation.

The only question is how much damage we do in the interim. Every year we delay we transfer well-being from many people in the future to a small number in the present. More refugees, for example, will spill across borders due to climate change, in the aftermath of droughts and extreme weather and rising sea levels.

The Pope demands that we in wealthy nations not become numbed to the plight of the poor as we try and address our environmental and climate problems. The encyclical comments that “a true ecological approach always becomes a social approach; it must integrate questions of justice in debates on the environment, so as to hear both the cry of the earth and the cry of the poor.”

To get to this promised land, we must let go of our fear that action will be painful. That means our actions must be steeped in concepts of climate justice: providing decent and plentiful jobs building the green infrastructure we need, ensuring that no one is left behind, and that the high emitters causing the problem are first to act.

As Canadians vote in a few weeks time, we should reflect on how we move forward together with compassion and justice on the overarching challenge of our times.

TPP: Renegotiating NAFTA, By the Back Door

For years, trade and justice activists have proposed renegotiating the North American Free Trade Agreement to address some of the deal’s most damaging features: for example, by removing the anti-democratic investor-state dispute settlement provisions of Chapter 11, linking trade benefits to genuine protections for human and labour rights (all the more important given the deteriorating democratic situation in Mexico), and establishing a continent-wide strategy for auto investment and production.  We were always told that renegotiating NAFTA was a pipe dream: it would not be possible to open the text and get all three countries on board with reforms, no matter how legitimate the concerns. Read more »

Missing in (debate) action: macroeconomic lessons from the Great Depression

This is a guest blog post from Mario Seccareccia, Professor of Economics, University of Ottawa.


Since the October 2008 federal election, Canadian politicians have been struggling to come to terms with what to all accounts has turned out to be a “lite” version of the 1930s, whose major difference is that today we have a much larger government sector that is now about 1/4 rather than 1/10 of gross domestic product, thereby offering somewhat of a makeweight (despite the adoption of fiscal austerity over the last five years). Also, we have today an indomitable Canadian consumer who continues to spend somewhat because of the easy credit that the banking sector creates in additional purchasing power to supplement an otherwise stationary, if not declining, real personal disposable income, as long as households are able to service their debts at such record low levels of interest rates set by the Bank of Canada.

However, much like the 1929 crash, we experienced a worldwide financial crisis centered in the US in 2008. As it is well known, the financial crisis triggered a collapse of economic activity, which after a short fiscal stimulus immediately after the financial crisis in 2009, governments are now back to being obsessively concerned about government deficits. Given their fears of being financially in the red for a significant length of time, fiscal policy inaction has become the norm nowadays just as it was during the 1930s. Indeed, during that era, those Herbert Hoover/R.B. Bennett policies of austerity, implemented in the name of strengthening investors’ confidence, did little of that, since investment spending remained abysmal. By initially putting a lid on public spending, what these policies did was to help to keep economies in a state of long-term stagnation during the Great Depression despite some short-lived socially desirable New Deal measures put in place until Western governments justified, on a more massive scale, net public spending by implementing a less socially desirable, yet equally efficient, brand of what has been sometimes described as “military Keynesianism” during WWII.  Some seven years after the financial crisis in 2008, we seem to have a repetition of what, in appearance, looks more and more like the 1930s scenario that even the former secretary to the US Treasury and former director of the US National Economic Council, Lawrence Summers, has decried as a trend towards a state of secular stagnation.

There are three important lessons from the Great Depression to which our political leaders seem to be oblivious because of what seems to be a collective amnesia. First of all, to kick start an economy stuck in a state of secular stagnation (that is, a situation in which private businesses are unwilling to undertake significant spending), it is up to the state to do so. During the first two decades of the postwar period, governments espoused some hybrid form of the basic principle of “functional finance”, which simply affirmed that budget deficits (or surpluses) should not be consider as ends in themselves but rather as means or instruments to achieve socially desirable macroeconomic goals, such as low rates of unemployment and high rates of economic growth.  Hence, unless one lives in a country without its own currency (such as Greece) or in a dollarized regime (such as Ecuador), the federal government should abandon the principle of seeking to achieve budget balances or a budgetary surplus for all seasons.

But why is deficit spending not a problem. This brings us to a second lesson. In an advanced monetary economy as ours, at the macroeconomic level there must be at least one sector of the economy that spends more than it receives. If economic agents in an economy spend only what they receive as incomes, then at best such an economy will remain stuck in a stationary state, without growth. In reality, we know that certain groups, who save, may actually want to spend less than their total revenues or incomes, and hence there must be some other sector that must spend more than it receives to sustain spending growth in an economy.  How can one envisage growth in an economy in which both the private sector and the public sector refuse to spend more than their receipts, thereby refusing to run deficits? Where will the net spending come from? That was the waiting game and scenario of the 1930s during which period the economy only began to grow significantly once large doses of net government spending were undertaken at the end of the 1930s because of WWII.

As a corollary, there is a third simple lesson. Let us imagine the economy as being regrouped into two very large sectors, namely the private sector (households and firms representing , say, 3/4  of the economy) and the public sector (all levels of governments representing the remaining 1/4), while abstracting for now the net spending behaviour of foreigners. In this economy, if, say, the consolidated public sector spends more than it receives (that is, a situation in which the government sector runs a deficit), then the private sector will find itself receiving more than it is spending, that is to say, that it will be building up savings that would permit private agents to deleverage if they are in debt. Needless to say, if we also add foreigners who are willing to buy more of our wares than we buy of theirs, then the positive net exports would further compound this deleveraging of the private sector domestically. If, on the other hand, the government sector begins to run surpluses, this would be destroying private saving and increasing household debt.

As former prime minister Paul Martin has said it very clearly in his support of the Liberals’ programme during this election campaign, the reason why he was able to achieve federal budgetary surpluses for over a decade since the mid-1990s was because households had been running up huge debts as interest rates were falling and the US economy was running on six cylinders by generating record levels of positive net Canadian exports, especially during the Clinton years of the late 1990s. Nowadays, none of these elements are in place. Households are overextended, interest rates cannot go any lower and our neighbours to the south have also been suffering anemic long-term growth. These are not unlike the conditions prevailing during the 1930s, when the private sector faced an increasing debt burden, interest rates had reached bottom, and countries internationally had been seeking to “beggar thy neighbours”, as all these countries were seeking to achieve trade surpluses, which of course is logically impossible for the planet as a whole, and all that it did was to spread deflationary pressures internationally!

Indeed, a policy of seeking to run budget surpluses until 2020 as targeted by both by Stephen Harper’s Conservatives (of about $4.7 billion annually) and Tom Mulcair’s NDP (at around $3.5 billion annually, pulled from the NDP Fiscal Framework), will do nothing but to destabilize further the private sector by preventing Canadian households from deleveraging via increased savings through higher overall income growth. Why would the federal government want to prevent private households from deleveraging? There is something particularly pernicious about such a proposed fiscal policy of striving to achieve budgetary surpluses largely on the backs of the household sector. There is nothing “sound” about a policy whose actual effect will be to de-stabilize the finances of the private sector. Interestingly, Justin Trudeau’s Liberals have at least understood the need to stimulate the economy in the current context and they should be applauded for recognizing this. Yet, even they have not fully abandoned the principle of “sound finance” in favour of the principle of “functional finance”, since presumably the latter are themselves committed to balancing the books by 2019 after which they will have also reached the Nirvana of budget surpluses as they had achieved during the Chrétien and Martin years!

Why has our current crop of Canadian political leaders gotten themselves trapped in this rhetorical box of “sound finance” that will merely guarantee that our economy will remain stuck in a state of secular stagnation? Must we wait for some outside shock to end fiscal austerity as had happened at the end of the 1930s? In defense of his 2009 fiscal stimulus, in 2008 Prime Minister Harper himself affirmed that one of the causes of the Great Depression was that policymakers “undertook to balance the books at all costs — raising taxes and contracting government economic activity at a time when fiscal stimulus was absolutely essential.” ( ) Why is it that a fiscal stimulus was appropriate in 2009, but that it is inappropriate today and that we must now target fiscal surpluses during this recession?

Election 2015: The Political Economy of Balanced Budgets

First, disclosure.  I wear several hats.  In addition to being a progressive economist, I am  a member of the NDP.  I have been since 1988.  I will be voting for the NDP candidate in my riding and I just donated $100 to the party,with more to follow.

The recent promise of four years of balanced budgets by the Mulcair-led NDP has irked several progressive economists  (see Marc Lavoie  and Louis-Philippe Rochon), who are puzzled over why Canada’s social democratic party would eschew running deficits during a period of cyclical slow-down and probable stagnation. The quick answer is that the Mulcair team is not trying to convince  mainstream economists (a relatively small, spread-out segment of the Canadian electorate) of the wisdom of post-Keynesian economic policy, but rather is trying to persuade the median Canadian voter (a problematic concept, for sure) that they would not be the Ontario Bob Rae government of the early 1990s.

Progressive economists sometimes refer to themselves as political economists.  However, I fear we sometimes don’t given enough attention to the political.  To implement your economic policy platform, you need to win the electoral competition game.  Our game is a majoritarian one, meaning winning 50% plus one seat to form the government.  In this federal election, that involves winning at least 170 of the 338 seats of the House.

Let’s check the political arithmetik:  at dissolution of the 41st Parliament in August, the NDP held 95 of 308 (versus the Conservative 159 and the Liberal 36).  Note the increase of 20 seats from 308 at dissolution to the 338 up for grabs in the October election due to the 2012 electoral redistribution.  Let’s look at the distribution of NDP incumbent seats across the regions: Atlantic 6 of 32; Quebec 54 of 75; Ontario 19 of 106; Prairies 3 of 56; British Columbia 12 of 36, the North 1 of 3.

To form the government, the NDP have to win an additional 75 seats as well as retain their 95 incumbent seats to bring their number to 170.  Let’s assume they retain their seats in Atlantic, Quebec and BC/North, but make no further gains in those regions; that’s 73 seats.  To form the government, the Mulcair NDP will need to not only hold onto their 22 seats in Ontario and the Prairies (19 and 3 respectively), but will need to win an additional 75 in those regions.  An additional 75!  This is quite an electoral challenge, and this I feel explains why the NDP have chosen a platform centred on balance budgets: to win the confidence of the dissatisfied moderate of Ontario and the West.  Assuming the mantle of Tommy Douglas (and Roy Romanov) and not Bob Rae (and Glen Clarke and Darrell Dexter) positions themselves as such.

The Trudeau Liberals, needing to distinguish themselves from the Mulcair NDP, have taken the courageous stance and promised three  years of deficit spending, investing in infrastructure.  Will it persuade Canadian voters?  With only 36 seats at dissolution, they have even more ground to gain, an additional 134 seats, to form the government!  That would be quite the red tide, compared to the orange wave.

Political scientist Peter Hall once remarked: “Much of what goes on in the political arena is, in fact, a struggle among political entrepreneurs to define the way in which the electorate or potential followers within it interpret their interests.”  In the days leading up to October 19, it will be interesting to see how Mulcair and Trudeau teams perform in defining the interests of Ontario and Western voters.


Ten Things to Know About Homelessness in Canada

This afternoon I gave a presentation at Raising the Roof’s Child & Family Homelessness Stakeholder Summit in Toronto. My slide deck can be downloaded here. To accompany the presentation, I’ve prepared the following list of “Ten Things to Know About Homelessness in Canada.”

1.Efforts to enumerate persons experiencing homeless have generally been spotty, but it is reasonable to assert that homelessness in Canada saw substantial growth in the 1980s and 1990s. On a nightly basis in Toronto, there were about 1,000 persons per night staying in emergency shelters in 1980. By 1990, that figure had doubled. And ten years later, there were 4,000 persons per night staying in Toronto’s emergency shelters. The Toronto figure of 4,000 per night has remained relatively constant for the past 15 years, though it has ‘edged up’ in the aftermath of the 2008-2009 recession—a phenomenon which I’ve previously written about here. (Admittedly, the number of persons living in emergency shelters on a nightly basis is a rather narrow gauge of homelessness. According to Canada Mortgage and Housing Corporation, approximately 13% of Canadian households are in “core housing need;” for Nunavut, the figure is a whopping 39%.)

2. Though it’s difficult to establish causation, I think relatively safe assumptions can be made about some of the major contributors to homelessness. Researchers are generally careful about using the term causation—in fact, there are long-standing tensions among academic disciplines as to what methodological approaches are required to establish it. Statisticians, for example, generally believe that randomized controlled trials (RCTs) are needed to establish causation; but as David Freedman has argued, RCTs are often “impractical or unethical” (Freedman, 1999, p. 255). Rather, careful researchers are more likely to say things like “these factors have likely contributed to this effect,” or “I think it’s likely that this effect caused this to happen.” And with that in mind, I’d like to suggest that there are probably three major factors that have contributed to homelessness in Canada: 1) macroeconomic factors (especially unemployment); 2) changes to our social welfare system (including a decrease in the availability of government-subsidized housing); and 3) the design and administration of policies whose specific intent is to respond directly to homelessness (often referred to as ‘systems responses’ to homelessness).

3. Homelessness has profound ramifications on the lives of children. As I wrote in 2012: “Two studies have been done in Toronto looking at the role of housing with respect to children in care. Results of both studies 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). Other research estimates that, on an annual basis in Toronto alone, approximately 300 babies are born to mothers who are homeless. (Of course, homelessness can have profound ramifications on the lives of adults as well. For more on this, see this 2007 study.)

4. The role of Canada’s federal government in funding both housing for low-income persons and programming for homeless persons has varied considerably over time. Provinces and territories spend much more of their own money on housing for low-income persons when the federal government leads. Thus, a considerable amount of subsidized housing for low-income Canadians was built from the mid-1960s through to the early 1990s. Since the early 1990s, comparatively little subsidized housing has been built for low-income persons in Canada. I should also note that the annual, inflation-adjusted value of federal funding for homelessness today is worth just 35% of what it was worth in 1999.

5. Not every province/territory responds to homelessness in the same way. While much mores subsidized housing for low-income persons gets built when the federal government leads, provinces and territories don’t always respond to federal funding initiatives in the same way. For example, between 2002 and 2013, three times as many subsidized housing units were built in Alberta (on a per capita basis) than in Ontario. I would argue that a driving force behind this differential stems from Alberta’s strong economic performance during this same period relative to that of Ontario’s.

6. Though a careful researcher will be cautious in discussing what causes homelessness, I think we know a lot about what solves it. In many cases, a person who stays in an emergency shelter will ‘exit homelessness’ without substantial public resources. In some cases, they might find housing on their own; in other cases, family and friends may provide them with short term assistance—e.g. some financial support, a couch to sleep on, etc. (To learn more about lengths of stay in homeless shelters in a sample of Canadian cities, see this 2013 study.) Researchers and advocates for the homeless generally don’t view such short-term stays as a major public policy challenge—the bigger challenge is in the case of persons who stay in emergency shelters (and outside) for longer periods of time. Even here though, I would argue that it’s hardly a mystery as to what constitutes an effective policy response.

Indeed, as early as the mid-1980s, small non-profit organizations in Ontario (and possibly in other provinces as well) found success in building subsidized housing for persons who had experienced long-term homelessness—they did so by providing professional staff support to help such tenants live independently in those units. This was (and still is) known as supportive housing. The emergence of supportive housing in Ontario happened in large part due to strong advocacy by community-based groups. This included: the Singles Displaced Persons Project; the consumer/survivor movement; the slogan “homes not hostels;” the founding of Houselink Community Homes; and the founding of Homes First Society. Conditions of eligibility for such housing varied from one provider to the next. In many cases, the tenant did not have to prove ‘housing readiness’ before being offered a unit. In fact, Homes First Society got its name because its founders believed that its tenants needed homes first before addressing other challenges (i.e. mental health, substance use, employment, etc.).

Today, researchers, practitioners and advocates refer to this approach as ‘housing first.’ And very recently, a successful RCT of ‘housing first’ was conducted in five Canadian cities; I’ve previously written about that study here.

7. There are several ways of making housing available to low-income households; all of them involve the private sector to varying degrees. Sometimes when government subsidizes housing for low-income persons, it provides money to a non-profit entity that develops, owns and operates the units. Other times, government provides a subsidy to landlords (either for-profit or non-profit); in exchange for the subsidy, the landlord agree to rent units at a reduced rate for a specified period of time (e.g. in some cases, for 10 years). And other times, government provides money (often known as a housing allowance) to low-income tenants who then rent a unit from a for-profit landlord. Of the three possible approaches, I personally have a preference for the option where a non-profit entity develops, owns and operates the units (and I have previously written about this here). Having said that, I think there’s a place for all three approaches, depending on local context.

8. Some jurisdictions have used sophisticated information management systems as part of their efforts to respond to homelessness. Many organizations serving homeless persons in Calgary enter client information into a database called the Homelessness Management Information System, a system that is also used in many American cities. Client-level information (such as age, health status, employment status and housing status) is entered into the database when an initial intake is done. While the client is receiving services, updated information is entered again; in the case of some programs, follow-up assessments are done every three months. In the case of some program types, there are both exit and post-exit follow-up assessments completed. All information-gathering is subject to provincial privacy legislation. There are many uses for the data once it’s gathered. For example, some organizations use the data to provide case management services to clients. Also, funders are able to assess each organization’s performance against benchmarks (i.e. percentage of clients who receive housing after a specific period of time).

9. When it comes to both preventing and responding to homelessness, the capacity of government to generate revenue matters a great deal. Governments typically use revenue generated from taxation to finance both subsidized housing and other important social programs. When tax revenue decreases, many governments have less ability to spend on such programs. Since the mid-1990s, tax revenue in Canada (measured as a percentage of our Gross Domestic Product) has decreased substantially. If this trend doesn’t reverse itself soon, it will be very challenging for many governments (especially provincial, territorial and municipal governments) to invest in important social programs. There is currently a move afoot by some Canadians to increase taxes; it is led by Alex Himelfarb, former Clerk of the Privy Council. Alex and his son Jordan recently co-edited a book that calls for the need for higher taxation in Canada. (Note: according to some schools of thought, it isn’t necessary for a sovereign government with its own currency to tax more in order to finance more social spending. While keeping in mind that such an approach would be most relevant to Canada’s federal government—and much less relevant to provincial, territorial and municipal governments—readers can read more about one such school of thought here.)

10. Over the course of the next decade, Canada will likely see substantial increases in homelessness among both seniors and Indigenous peoples (First Nation, Métis and Inuit). Seniors and Indigenous peoples are growing as a percentage of Canada’s total population. Further, the percentage of seniors living below Statistics Canada’s Low-Income Measure has grown substantially since the mid-1990s. I think all of this makes it likely that both of these groups will begin to grow as a percentage of Canada’s homeless populations.

The following individuals were very helpful in helping me prepare the present blog post: Maroine Bendaoud, Lisa Burke, George Fallis, Greg Suttor, Francesco Falvo, Louise Gallagher, Ali Jadidzadeh, Lisa Ker, Jennifer Legate, Kevin McNichol, Richard Shillington, Blake Thomas and Mike Veall. Any errors are mine.

Dix Choses à Savoir sur l’Itinérance au Canada

Cet après-midi, j’ai fait une présentation au Child & Family Homelessness Stakeholder Summit, organisé par Chez Toit, à Toronto. Ma presentation, illustrée de diapositives, peut être téléchargée ici. Pour accompagner la présentation, je vous ai préparé la liste suivante: « Dix choses à savoir sur l’itinérance au Canada. »

1. Les tentatives de dénombrer les personnes en situation d’itinérance ont généralement été intermittentes, mais il est raisonnable d’affirmer que l’itinérance au Canada a connu une croissance importante entre 1980 et 2000. Sur une base quotidienne à Toronto, il y avait environ 1,000 personnes par nuit séjournant dans les refuges d’urgence pour les personnes sans-abris en 1980. En 1990, ce chiffre avait doublé. Et dix ans plus tard, il y avait doublé encore pour s’élever à 4,000. Le chiffre de 4,000 par nuit, à Toronto, est demeuré relativement constant au cours des 15 dernières années, même s’il a légèrement augmenté à la suite de la récession de 2008-2009, un phénomène sur lequel j’ai déjà écrit içi. (Certes, le nombre de personnes vivant dans des refuges d’urgence pour les personnes sans-abris sur une base quotidienne est un indicateur plutôt étroit de l’itinérance. Selon la Société canadienne d’hypothèques et de logement, environ 13% des ménages canadiens ont un « besoin impérieux en matière de logement; » pour le Nunavut, le chiffre est un énorme 39%.)

2. Bien qu’il soit difficile d’établir un lien de causalité, je pense que des hypothèses relativement sûres peuvent être faites sur certains des principaux contributeurs à l’itinérance. Les chercheurs sont généralement prudents sur l’utilisation du terme causalité—en fait, il y a des tensions de longue date entre les disciplines académiques sur quelles approches méthodologiques sont nécessaires pour l’établir. Les statisticiens, par exemple, croient généralement que des essais randomisés contrôlés (ERC) sont nécessaires pour établir un lien de causalité; mais comme David Freedman a fait valoir, les ERC sont souvent «impossibles ou contraires à l’éthique» (Freedman, 1999, p. 255). Les chercheurs prudents préfèrent plutôt s’exprimer par des phrases comme: « Ces facteurs ont probablement contribué à cet effet, » ou « Je pense qu’il est probable que ceci a causé cela. » C’est dans cet esprit que je voudrais suggérer qu’il y a probablement trois principaux facteurs qui ont contribué à l’itinérance au Canada: 1) les facteurs macroéconomiques (en particulier le chômage); 2) les changements à notre système de protection sociale (y compris une diminution de la disponibilité de logements sociaux, voulue par le gouvernement); et 3) la conception et l’administration des politiques dont le but spécifique est de répondre directement à l’itinérance (souvent désignés comme des «réponses» à des systèmes sans-abri).

3. L’itinérance a des ramifications profondes sur la vie des enfants. Comme j’ai écrit en 2012: «Deux études ont été faites à Toronto sur l’effet du logement sur les enfants qui ont dû être mis en charge de l’assistance publique.  Les résultats des deux études indiquent que, dans un cas sur cinq, l’ état du logement de la famille était un facteur dans l’admission temporaire dans l’assistance publique. Ces résultats de la recherche de Toronto indiquent également que, dans un cas sur 10, la situation du logement a retardé le retour à la maison de l’enfant» (Falvo, 2012, p. 14). Une autre recherche estime que, sur une base annuelle à Toronto seulement, environ 300 bébés sont nés de mères qui sont sans abri. (Bien sûr, l’itinérance peut avoir des conséquences profondes sur la vie des adultes aussi. Pour en savoir plus, voir cette étude de 2007).

4. Le rôle du gouvernement fédéral du Canada dans le financement et du logement pour les personnes à faible revenu et des programmes pour les personnes sans-abri a varié considérablement au fil du temps. Les provinces et les territoires consacrent beaucoup plus de leur propre argent au logement pour les personnes à faible revenu lorsque le gouvernement fédéral mène. Ainsi, un nombre considérable de logements sociaux pour les Canadiens à faible revenu ont été construits à partir du milieu des années 1960 jusqu’au début des années 1990. Depuis le début des années 1990, relativement peu de lodgements sociaux ont été construits au Canada. Je tiens également à noter que la valeur annuelle, ajustée à l’inflation, du financement fédéral pour les personnes sans-abri d’aujourd’hui vaut seulement 35% de ce qu’elle valait en 1999.

5. Chaque province / territoire ne répond pas à l’itinérance de la même manière. Alors que beaucoup plus de logements subventionnés pour les personnes à faible revenu se construisent lorsque le gouvernement fédéral mène, les provinces et les territoires ne répondent pas toujours aux initiatives fédérales de financement de la même façon. Par exemple, entre 2002 et 2013, trois fois plus de logements subventionnés ont été construits en Alberta (sur une base par habitant) qu’en Ontario. Je dirais qu’ une force majeure derrière cette différence provient de la bonne performance économique de l’Alberta au cours de cette même période par rapport à celle de l’Ontario.

6. Bien qu’un chercheur attentif soit prudent en discutant ce qui provoque l’itinérance, je pense que nous savons beaucoup de choses sur ce qui la résout. Dans de nombreux cas, une personne qui séjourne dans un refuge d’urgence pour les personnes sans-abris le quitte, sans importantes ressources publiques. Dans certains cas, elle pourrait trouver un logement sans beaucoup d’aide publique; dans d’autres cas, la famille et les amis peuvent lui fournir une assistance à court terme—par exemple, un soutien financier, un canapé pour dormir, etc. (Pour en savoir plus sur la durée de séjour dans des refuges d’urgence pour les personnes sans-abris dans un échantillon de villes canadiennes, voir cette étude écrite en 2013.) Les chercheurs et les défenseurs des sans-abri en général ne considèrent pas les séjours à court terme un grand défi pour la politique publique—le plus grand défi est dans le cas des personnes qui séjournent dans des refuges d’urgence pour les personnes sans-abris (et en dehors) pour des périodes de temps plus longues. Même ici, cependant, je dirais que ce qui constitue une réponse politique efficace de la part d’un gouvernement n’est pas un mystère.

En effet, dès le milieu des années 1980, les petits organismes sans but lucratif de l’Ontario (et peut-être dans d’autres provinces aussi) ont trouvé le succès dans la construction de logements subventionnés pour les personnes qui avaient vécu la vie de sans-abri à long terme—ils l’ont fait en offrant du soutien professionnel pour aider ces locataires à vivre de façon autonome dans ces unités. Cettte approche est connue sous le non de logements supervisés—à Salus (un organisme à but non lucratif à Ottawa) il est connu aujourd’hui sous le nom de logements avec soutien. L’émergence de logements supervisés en Ontario est due en grande partie à la forte sensibilisation due à des groupes communautaires. Cela comprenait: le Singles Displaced Persons Project; le mouvement consommateur / survivant; le slogan «homes not hostels; » la fondation de Houselink Community Homes; et la fondation de Homes First Society.  Les conditions d’éligibilité pour de tels logements varient d’un fournisseur à l’autre. Dans de nombreux cas, le locataire n’a pas à prouver sa préparation pour le logement avant de recevoir un logement. En fait, Homes First Society a obtenu son nom parce que ses fondateurs croyaient que, pour ces locataires, il était nécessaire d’avoir une résidence avant d’aborder d’autres défis (santé mentale, toxicomanie, emploi, etc.).

Aujourd’hui, chercheurs, praticiens et défenseurs appellent cette approche «logement d’abord». Et très récemment, un heureux ERC de «logement d’abord» a été mené dans cinq villes canadiennes. (J’ai déjà écrit à propos de cette étude ici.)

7. Il y a plusieurs façons de rendre les logements disponibles pour les ménages à faible revenu; toutes impliquent le secteur privé à des degrés divers. Parfois, lorsque le gouvernement subventionne des logements pour personnes à faible revenu, il fournit de l’argent à une entité à but non lucratif qui développe, possède et exploite des unités. D’autres fois, le gouvernement fournit une subvention aux propriétaires (soit à but lucratif ou à but non lucratif); en échange de la subvention, le propriétaire accepte de louer des logements à un taux réduit pour une période de temps déterminée (par exemple, dans certains cas, pour 10 ans). Et d’autres fois, le gouvernement fournit de l’argent (souvent connu comme une indemnité de logement ou allocation de logement) pour les locataires à faible revenu qui louent alors une unité d’un propriétaire à but lucratif. Parmi les trois approches possibles, j’ai une préférence pour l’option où une entité à but non lucratif développe, possède et exploite des unités (et je l’ai déjà écrit à ce sujet ici). Cela dit, je pense qu’il y a une place pour les trois approches, selon le contexte local.

8. Certaines juridictions, pour répondre á l’itinerance, ont utilisé des systèmes sophistiqués d’ information.  De nombreuses organisations au service des personnes sans-abri à Calgary recuellient des renseignements sur leurs clients dans une base de données appelée Homelessness Management Information System­—système également utilisé dans de nombreuses villes américaines. Des renseignements concernant le client (âge, état de santé, statut d’emploi et statut du logement) sont entrés dans la base de données quand un apport initial est effectué. Plus tard, alors que le client reçoit des services, des renseignements actualisés sont entrés de nouveau; dans le cas de certains programmes, des évaluations de suivi sont effectuées tous les trois mois. Dans le cas de certains types de programmes, il y a à la fois des évaluations de sortie et, après fermeture, des évaluations de suivi. Tous les renseignements en matière de vie privée sont soumis à la législation provinciale. Ces données, une fois recueillies, sont utilisées de façons diverses. Par exemple, certains organismes les utilisent pour fournir des services de gestion de cas pour les clients. En outre, les bailleurs de fonds sont en mesure d’évaluer la performance de chaque organisation par rapport aux repères (c-à-d, le pourcentage de clients qui reçoivent un logement après une période de temps spécifique).

9. En ce qui concerne la prévention et la réponse à l’itinérance, la capacité du gouvernement de générer des revenus revêt une grande importance. Les gouvernements utilisent généralement des revenus générés par l’impôt pour financer à la fois les logements sociaux et d’autres programmes sociaux importants. Lorsque les recettes fiscales diminuent, de nombreux gouvernements ont moins d’argent à consacrer à ces programmes. Depuis le milieu des années 1990, les recettes fiscales au Canada (mesurées en pourcentage de notre produit intérieur brut) ont diminué sensiblement. Si cette tendance ne se renverse pas bientôt, il sera très difficile pour de nombreux gouvernements (provinciaux, territoriaux et municipaux) d’investir dans des programmes sociaux importants.

Il y a actuellement un mouvement qui préconise l’augmentation des impôts; il est dirigé par Alex Himelfarb, ancien greffier du Conseil privé. Alex et son fils Jordan ont récemment co-édité un livre qui preconise une taxation plus élevée au Canada.

(Remarque: selon certaines écoles de pensée, ce n’est pas nécessaire pour un gouvernement souverain avec sa propre monnaie de taxer davantage afin de financer les dépenses sociale. Pour plus de renseignement sur cela, lire ici.)

10. Au cours de la prochaine décennie, le Canada verra probablement une augmentation substantielle de l’itinérance chez les aînés et chez les peuples autochtones (Premières Nations, Métis et Inuits). Les personnes aînées et les peuples autochtones sont de plus en plus nombreux comme un pourcentage de la population totale du Canada. En outre, le pourcentage de personnes âgées vivant sous la mesure de faible revenu de Statistique Canada a augmenté considérablement depuis le milieu des années 1990. Je pense que tout cela fait qu’il est probable que ces deux groupes vont commencer à croître en tant que pourcentage des populations sans-abri du Canada.

Les personnes suivantes m’ont aidé à préparer le présent blogue: Maroine Bendaoud, Lisa Burke, George Fallis, Greg Suttor, Francesco Falvo, Louise Gallagher, Ali Jadidzadeh, Lisa Ker, Jennifer Legate, Kevin McNichol, Richard Shillington, Blake Thomas et Mike Veall. Toutes les erreurs sont les miennes.

Federal Surplus: Digging Deeper

This week Stephen Harper’s Conservatives are trumpeting the announcement of a small surplus ($1.9 billion) for fiscal 2014-15.  The political symbolism of this “good news” is a welcome change for them from a string of negative economic reports (most importantly, news that Canada slipped into recession in the first half of 2015) that has damaged their traditional claim to be the best “economic managers” for the country.  Let’s take a deeper look at the surplus, where it came from, and what it means. Read more »

New Study on Positive Economic Impacts of Public Infrastructure Investment in Canada

A five-year $50-billion public infrastructure spending initiative would generate a return on investment to Canadians over the long term as high as $3.83 per dollar spent, trigger significant private sector investment and stimulate wage increases, according to a new study by an independent economic modelling firm.

The Economic Benefits of Public Infrastructure Spending in Canada, authored by the Centre for Spatial Economics, examined the short term (2015 to 2019) and long run (2020 to 2040) economic impacts of a large public investment program in transportation and basic urban infrastructure. It models a five-year program of $10 billion per year equally shared by the federal and provincial governments with a set of simulations that examine the benefits to productivity from public infrastructure.

The study, commissioned by the Broadbent Institute, found that in the short term the infrastructure program boosts GDP by $1.43 per $1 spent due to the multiplier impact. Within the five-year construction phase, governments also recoup $0.44 of every dollar spent through additional tax revenues.

The public infrastructure confers permanent benefits to private business by lowering their operating costs, which leads to increased productivity and higher wages for workers.

“These results show why a robust public infrastructure program just makes sense, and I’m encouraged the opposition parties are committed to investing,” says Rick Smith, Executive Director of the Broadbent Institute. “This is about Canada’s long-term prosperity. It will enhance our competitiveness, boost productivity and raise real wages – while making a significant dent in Canada’s infrastructure deficit.”

Other key findings include:
•In the short term, the spending program boosts employment by between 81,000 and 88,000 jobs, increasing the employment rate by 0.4% to 0.5%;
•About one half of the new jobs (42,150) would be in construction, with positive short-term impacts on output and jobs in manufacturing and the business service sector providing inputs to construction;
•In the short term, provincial revenues raised per dollar spent are highest in Quebec ($0.72), British Columbia ($0.57) and Nova Scotia ($0.46). B.C. and Quebec see the greatest impact on real GDP growth in the short term: while the average annual increase across the range of benefit scenarios for Canada is around 0.7%, B.C. sees growth between 0.8% and 0.9% and Quebec an average increase of over 1.0%.
•Private-sector investment rises by as much as $0.34 per dollar spent in the short term, and by up to $1 per dollar spent in the long run;
•The spending program increases labour productivity by between 0.3% to 0.5% in the long term and workers earn higher real wages: up 0.4 to 0.6% a year on average relative to the economy without the spending program.
•The change in the average annual deficit-to-GDP ratio from this program lies between a rise of 0.04% and a decline of 0.02% for the federal government, and between a rise of 0.08% and a fall of 0.04% for provincial governments.

“The benefits of a public infrastructure spending program include more private-sector investment, a more productive economy, and a higher standard of living — and all are achieved without significant long-term fiscal consequences to federal or provincial governments,” the report states.

“There’s also a cautionary tale in here,” added the study’s author, economist Robin Somerville. “The costs of neglecting our public infrastructure are not zero. Allowing our public infrastructure to decay imposes costs at least equal but opposite to the benefits estimated in this study.”

The report is available online at The economic model is based on the economic and fiscal forecasts as of January 2015.

Small Business Taxes, Big Loopholes

by: Kaylie Tiessen & David Macdonald

Small business taxes made the news last week when, during a CBC interview, federal Liberal leader Justin Trudeau suggested many business owners are using the small business tax rate as a de facto in-country tax shelter.

Responding to the interview, Conservative leader Stephen Harper accused Trudeau of taking aim at the backbone of the economy. NDP leader Tom Mulcair called on Trudeau to apologize.

The Conservatives have already legislated a decrease in the federal small business tax rate – from 11% to 9% by 2019. The NDP have promised to make it 9% by 2017 if elected.

So why the controversy? Does Trudeau have a point? Let’s look at how small business taxation really works.

If you’re a small business owner, there are two ways to take money out of your small business for personal use:  

  1. Pay yourself a salary: In this case the owner gets a T4 just like everyone else and pays the full personal income tax rate. The business pays no small business taxes on wages as these are paid out before profit.  
  2. Pay yourself in dividends: Here the owner pays the small business tax rate on the retained earnings or profit, as well as the full personal income tax rate on the dividend minus what the business already paid.

Surprisingly, when income is taken through dividends, the small business rate is of little consequence. Even if it were 0% (as it is in Manitoba), the owner gets no deduction and pays the full personal income tax rate on the dividend. In other words, personal taxes increase by exactly as much as small business taxes decrease. (There are some exceptions to this, but it generally works out this way.) The small business tax systems is built so that it won’t matter if you’re paid via dividends or a salary (except that one doesn’t make CPP contributions on dividend income)

So you might ask: why should anyone care about the small business tax rate if it doesn’t seem to make a difference in overall tax revenues? The primary reason is loopholes.

What would be illegal for most working stiffs (tax avoidance) is totally legit under Canada’s small business tax regime. As a small business owner, these five loopholes are available to you regardless of the small business tax rate:

  1. Income splitting with kids and spouse:  A small business owner can designate lower-earning family members as “non-voting shareholders” and pay them dividends. If they are in a lower tax bracket, they’ll pay a lower income tax rate or no income tax at all (if the dividend is less than about $41,000). Salaried wealthy people with children can now share up to $50,000 with a spouse. Business owners have always been able to do this with a spouse and children (over 18) without an upper dollar limit.
  2. Employing kids and spouse & income splitting again: There is no tax benefit to employing family members in a business per se (although it’s always nice to have a job). But you can pay them more than they’re worth. This is technically illegal but it’s very hard to crack down on. Technically,  you could pay your kids and spouse for time they didn’t work or at an exaggerated rate. This is another means of income splitting that doesn’t involve issuing non-voting shares.
  3. Postpone personal taxes for years: As an owner, you can choose to keep money you don’t need in the business and therefore not pay personal income taxes for an indefinite period (as long as the business is still “active”). Imagine saying to Revenue Canada, “I’ll pay those personal taxes later… when I’m 70.” Those “deferred” income taxes you owe–you get to invest them for 30 years before paying them. Eventually you will have to pay personal income taxes on that income, but maybe you’ll be retired and in a lower tax bracket by that time.
  4. Pass on $800K to your kids or spouse tax free: If you put your spouse and/or kids on as shareholders of your small business early enough, and you sell the business (and its shares) years later, they’ll each receive their portion of the sale price absolutely tax free, up to $813,000 each. (This is called an “estate freeze.”)
  5. Additional write-offs: A business owner can write-off expenses like a cell phone, home Internet, a home office, their car, certain types of trips, etc. It means you don’t pay personal income tax on that money which means these items are effectively 30% to 40% off. There are limits here, too, but as long as you don’t get too crazy you likely won’t be audited.


When we hear discussion of dentists, doctors or other professionals using “tax dodges,” they are thinking of the above methods for avoiding paying taxes: 100% of small businesses with accountants are using one or more of these strategies (and if they aren’t they should fire their accountant). This wasn’t always the case.

Prior to 2005, in Ontario, doctors could incorporate, but they couldn’t list family as shareholders, invalidating many of the loopholes above. A year after this was changed, we saw (surprise surprise!) a tenfold increase in doctors who were incorporated. Interestingly, only lawyers can hold shares in professional legal corporations, cutting out the income-splitting loophole (unless your spouse and children are lawyers).  

However much we might want to shut these loopholes for professionals, they are provincially regulated and therefore it’s up to the provinces to decide to close (or open) them. To get back on track: is there a point when the small business tax matters? Yes, in two circumstances:

  1. When you keep money in your corporation to defer income taxes: If small business taxes are lower, there is more money to start investing within the business. In other words, you can invest your “deferred” income taxes for years and keep the proceeds. Once the money is taken out (years later), personal income taxes still need to be paid. However, a larger initial investment will likely lead to larger gains due to compound interest. However, returns to investments (capital gains, dividends, interest income) in the corporation are taxed similarly to the personal side.
  2. When you save to buy things or expand the business: If you want to expand your business, you can save up previous years’ profits to do so. If the small business tax rate is lower, you’ll have more money to buy more equipment (in future years, for example). This is what a lower small business tax rate is meant to do: not create jobs per se, but make it easier to save up cash to buy new equipment, which can be a way for a small business to expand.


But here’s the rub: most small businesses don’t expand by saving up for five years to buy new equipment or open a new store. Instead, they go to the bank and get a loan or negotiate a lease and expand today, not five years from now. If there are real limits to small business expansion on the supply side, it’s in accessing loans and leases, not in taking half a year off the time they need to save for expansion.

At the same time, it’s not at all clear small businesses are facing supply-side barriers to expansion at this time.

Each month, the Canadian Federation of Independent Business (CFIB) conducts a survey of its members; two questions stand out:

  1. What types of input costs are currently causing difficulties for your business?
  2. What factors are limiting your ability to increase sales or production?

The most popular answer to the first question was taxes and regulations followed by wages, and fuel and energy costs. The most popular answer to the second was insufficient domestic demand. In other words, the most important reason given for not expanding sales or production was not the tax rate, but that the business did not have enough customers walking through the door (literally or figuratively) to make expansion worthwhile.

If we really wanted to see businesses investing and expanding, we really need to do boost aggregate demand, not lower taxes.

There are three main actions a government can take toward this end:

  1.     Raise wages: Inequality is at an elevated level in Canada, with many people, particularly those at the median income level, having seen no increase in their pay above inflation since the recession. While the government cannot decree an increase in every worker’s pay, there are actions that can be taken to boost incomes at the bottom and be a leader on the race to the top. These include raising the minimum wage (which the NDP has promised to do at the federal level), becoming a living-wage employer (which Vancouver has committed to and Toronto is exploring), and promoting higher quality jobs including fewer part-time jobs, fewer temporary jobs and fewer contract positions.

It may seem counter intuitive to suggest that businesses (who say the second most important input cost causing difficulties for the business is wages) pay their employees more. The thing is, we’ve been on a race to the bottom for quite some time, asking workers to accept lower and lower wages in the name of cheap prices. What we forgot along the way is that workers, particularly in the domestic service industry, are also customers. If they don’t have enough money to purchase the products they make or serve then, of course, aggregate demand will suffer.

  1.     Increase public spending on infrastructure and social programs: This is a practical tool simply because it creates jobs–jobs that, at least in the construction industry, tend to pay decently. Canada’s employment rate has not returned to pre-recession health; the country would need to create almost 240,000 new jobs to get us there. Put more starkly, there are 240,000 people who could be working today but who are not.

Business investment in non-residential structures, machinery and equipment fell in the first three quarters of 2015. It has also been weak since the end of 2011. Since the economy is operating with significant slack ( hence the recession in at least the first two quarters of 2015), spending on infrastructure and social programs would boost GDP and actually increase investment. With interest rates at historical lows, now is the perfect time to invest in infrastructure and give our economy a little boost.

  1.     Give more incentives to innovate: The Conference Board of Canada says that Canada ranks 13th out of 16 peer countries on innovation, and receives a D grade for overall innovation performance. And those countries that are more innovative are passing Canada when it comes to income per capita, productivity and the quality of social programs. The strange thing is that Canada is one of the largest spenders on research and development – certainly through post-secondary institutions, but also through tax incentives.  Unfortunately, tax incentives are the least effective tool to kick-start new technologies and new industries. There are many reasons for this, not least of which is that the benefit of the tax incentive is received after the spending has already happened. It means new and innovative companies need to raise the money to test out the new technology and receive a cash boost later.

Instead of using the policy mix above, the government has relied on tax cuts and a “balanced” budget to spur investment and boost aggregate demand. So far it hasn’t been working. As mentioned earlier, business investment declined in the first three quarters of 2015. It’s also been relatively weak for at least the last three years.

So, are small business tax cuts really the best way to help small business and the Canadian economy? The short answer is no. Moving the small business tax rate from 11% to 9% does not address the main reasons why small business may not be investing in growth and innovation; it simply gives professionals who are incorporated as a small business an extra two percentage points of deferred income–money they can invest in the stock market and other forms of capital for a rainy day. It may sound nice, but for any waged workers it would also be illegal.

Canada’s failed experiment with corporate income tax cuts


After a generation of comparatively high corporate income tax (CIT) rates, in the late 1980s Canadian governments at the federal and provincial levels began a series of corporate income tax reforms. According to many mainstream (‘neoclassical’) economists, reducing CIT rates was a wise public policy. A reduced CIT rate means a reduction in the cost of capital, thus inducing a greater supply of capital. And because investment is a key driver of growth, reducing CIT rates leaves firms more (after-tax) earnings to plough into growth-expanding industrial projects. Did the halving of the Canadian CIT rate spur higher levels of investment and more rapid growth?

The short answer is no: far from improving economic outcomes, there is evidence to suggest that corporate income tax reductions depressed Canadian GDP growth. I present a detailed explanation of why that’s the case in a forthcoming study to be published by the Canadian Centre for Policy Alternatives. Given the election debate around raising the CIT rate, I thought it worthwhile to summarize my findings. The study contrasts three Canadian corporate income tax rates—the effective federal CIT rate, the combined Canadian statutory CIT rate and the weighted average effective rate on the top 60 Canadian-based firms—with five growth variables, namely investment in fixed assets, employment, GDP per capita, labour compensation and productivity. I conclude that there is no empirical or statistically significant relationship between CIT regime and growth. Business investment is a key determinant of GDP growth, employment and labour compensation, but over the long-term it is unresponsive to changes in the statutory or effective CIT rate.

Consider Figure 1, which plots the combined statutory CIT rate for Canada and the weighted average effective CIT rate on the largest 60 Canadian-based firms (ranked annually by equity market capitalization). The first round of significant corporate income tax reform came in 1988, spearheaded by the Brian Mulroney Progressive Conservatives. Federal rates fell from 36 percent to 29 percent. The second round of corporate income tax reform came in 2001 with the Jean Chretien Liberals, which saw the federal statutory rate reduced from 28 percent to 22 percent in 2004 (where the rate already stood for manufacturing, resources and other ‘trade sensitive’ sectors).

CAN CIT Rates - Top 60 and Corporate Universe


The most recent round of corporate income tax reform was initiated by the Stephen Harper Conservatives in 2008, which saw a straight reduction to the statutory rate. In a five-step reduction program, statutory federal CIT rates fell from 21 percent in 2007 to 15 percent by 2012 (excluding the surtax of 1.1 percent, which was also scrapped by Harper). Over the past three decades the provinces have also taken a kick at CIT rate reduction can, cutting the statutory rate from an average of 14 percent in the late 1990s to 11 percent more recently. Both CIT rates in Figure 1 have been halved in the past three decades, with the bulk of the reduction coming since 2001. Did these reforms spur higher levels of investment and more rapid GDP growth?

Figure 2 plots the deep history of Canadian GDP growth and business investment in fixed assets. The decade average rate of GDP growth is adjusted for inflation and population and the decade average level of fixed asset investment is measured as a percentage of GDP. Even though CIT rates began to be reduced in the 1980s, the 1990s and 2000s performed worse in terms of economic growth, not better.

CAN GDP Growth and Biz Investment


The first few decades of the postwar era experienced an upward trend in investment. Significantly (and ironically), not only has investment failed to increase in recent decades in tandem with CIT rate reductions, the pattern that investment takes mirrors the CIT rate. Far from the CIT regime and growth being strongly and inversely related, there appears to be a positive association between the two variables, such that CIT rate reductions are historically associated with lower levels of investment.

Fixed asset investment averaged 13.7 percent of GDP in the postwar decades to 1980, but in the past three decades (whilst governments were fixated with corporate tax cuts) business investment fell to an average of 12.8 percent of GDP. In sum, when we contrast the experience prior to the CIT rate reduction era (1945–1988) with the CIT rate reduction-obsessed era (1988–2012), we see a move from heightened industrial capacity expansion and relatively robust GDP growth to capacity stagnation and the slowest GDP growth in post-Depression history.

Not only did Canadian CIT rate reductions fail to lead to faster growth, my study unearthed evidence which suggests that CIT rate reductions contributed to slower growth. By reducing CIT rates, Canadian governments contributed to the increased income position of large firms. Rather than investing their enlarged earnings into expansionary industrial projects, Canada’s corporate sector—especially its largest firms—have increasingly stockpiled cash on their balance sheet. This ‘dead money’, as former Bank of Canada Governor Mark Carney put it, is one ingredient in the heightened stagnation of recent times.

Figure 3 contrasts the income position of the top 60 Canadian-based firms, measured as net profit divided by GDP, with corporate cash—the latter measured as domestic and foreign currency and deposits as a percent of the total assets amongst all private non-financial corporations. The two series are tightly intertwined over half a century. The fact that Canada’s largest corporations have doubled their income share in the past two decades in tandem with excessive cash hoarding indicates that the growth of corporate power itself might be one determinant of cash stockpiling, and hence, of slower growth.

Top 60 Income Share and Cash Hoarding


As the leading firms claim a larger share of national income through enhanced size and market power, their capacity to stockpile cash increases. By hoarding cash these firms stabilize dividend payments, thus reducing risk, and this leaves them with more liquidity for acquisition activities and to hedge against market downturn. One consequence of the stockpiling of cash, then, is that a smaller share of national income is deployed to expand employment and industrial capacity.

There is another aspect to this story that bears investigation. The income share of the largest firms captured in Figure 3 is net of corporate income taxes. This means that the effects of changes in the CIT regime are built into the picture. If the hoarding of cash by large firms in an ingredient in slower growth, what is the relationship between the CIT regime and corporate hoarding? Figure 4 contrasts the level of corporate cash with the weighted average effective CIT rate on the top 60 firms. Note that the CIT rate is positioned on an inverted scale to facilitate its comparison with the level of cash.

WAE CIT Rate Top 60 Firms and Cash Hoarding


There is a very tight, persistent and negative relationship between the level of corporate cash and the CIT rate. With every reduction in the CIT rate, rather than investing its enlarged earnings into expansionary industrial projects, corporate Canada stockpiled an ever greater proportion of cash on its balance sheet. This means that, counterintuitively, the government frenzy for CIT rate reductions has exacerbated corporate cash hoarding and depressed growth.

Despite being factually supported, this line of reasoning is entirely at odds with neoclassical doctrine. If the findings contained in the forthcoming CCPA paper are true, then corporate tax cuts will go down as one of the great Canadian public policy blunders of the past generation. Far from spawning higher levels of investment and growth, the government fixation with corporate tax cuts has indirectly fostered slower growth.

Jordan Brennan is an economist with Unifor and a research associate of the Canadian Centre for Policy Alternatives. Follow him on Twitter @JordanPWBrennan. An attenuated version of this post can be found on the CCPA’s ‘Behind the Numbers’ series.


GDP Recession a Symptom of Deeper Failures

There were surely more people (myself included) watching Statistics Canada’s GDP release at 8:30 am Tuesday, than any other release in recent history! This reflected the political significance of the possibility that an official recession would be confirmed by the numbers, right smack in the middle of an election campaign — all the more so given the Conservatives’ self-congratulatory rhetoric about their supposed “economic credentials.”

The data did indeed confirm a second consecutive quarter of real GDP contraction, hence a recession by the traditional definition.  Of course, Conservatives and their friends immediately tried to discount the importance of the recession.  Stephen Harper dismissed the recession as “a couple of bad months,” and even heralded the StatsCan report as “good news” (since it showed a positive change in GDP in June, the last month of the quarter).

While there was a lot of suspense over that particular result, that shouldn’t obscure us from considering the broader weaknesses in Canada’s economy — weaknesses that would have continued to drag us down, far below our economic and social potential, even if no actual “recession” had been declared. Read more »