I emphasized the provincial deficit’s manageability, the folly of trying to reduce it through cutbacks or privatization, the importance of maintaining tax rates to bolster future revenues, and the advantage of targeted measures to create jobs rather than across-the-board tax cuts.

The transcripts are now available online. Lightly edited versions of both presentations follow.

First Presentation

I will focus on the question of the provincial deficit. Specifically, this presentation will:

- Examine the significance of projected deficits.

- Comment on some things that the provincial government should not do in response to the deficit.

- Suggest some things that the government should do with respect to the deficit.

I encourage members of this committee to step back from the hysteria surrounding the provincial deficit and recognize that Ontario has experienced major recessions and large budget deficits before. The history has been that, within a few years, the economy returned to its long-term trend of growing at about 2% annually above inflation and the provincial budget returned to balance.

The current recession is significantly worse than previous recessions, but current deficits are less worrying than previous deficits because interest rates are far lower. The recessions of the early 1980s and early 1990s were largely caused by high interest rates, which meant the deficits incurred during those periods greatly increased future debt-servicing costs. Conversely, interest rates are now at rock-bottom levels and will remain relatively low for some time, so today’s deficits can be financed relatively cheaply.

The government’s fall economic statement projects that between 2008-09, the last fiscal year, and 2010-11, the next fiscal year, the provincial debt will rise by 40%. However, it projects that over this same period, debt-servicing costs will increase by 23%. In other words, borrowing will increase interest costs by little more than half as much as the overall debt.

Even after this increase in debt-servicing costs, the Ontario government will still be paying less to service the debt next year than it did as recently as the 2000-01 fiscal year. The provincial deficit is certainly not Ontario’s worst problem. Reducing the deficit is less important than reducing unemployment.

The second issue I will examine is what the provincial government should not do in response to this deficit. The government and some outside commentators have floated the ideas of reducing the deficit in the short term by cutting provincial expenditures and/or by selling provincial Crown corporations. Both policies should be rejected. If implemented, they would risk increasing deficits in the long term.

It is neither feasible nor desirable to balance the budget through cutbacks. As committee members will know, the projected annual deficits in the next couple of fiscal years are approximately $20 billion. Cutting that amount of money out of the provincial budget would involve completely closing down the Ministry of Health or eliminating the entire public school system as well as all social services. Cuts on that scale are simply not realistic.

Also, as noted in chart 3 of the government’s fall economic statement, Ontario has the second-lowest program expenditures per capita of any Canadian province. The Ontario government is already investing too little in many important public services, so there is no room to cut further. If the public sector were cut, it would compound the contraction that has already occurred in the private sector, prolonging Ontario’s recession and jeopardizing the economic recovery that will increase provincial revenues and balance the budget in the long run.

Another proposal has been to raise money by selling provincial assets. This proposal would worsen future deficits by removing the more than $4 billion of annual revenues that Crown corporations currently contribute to the provincial treasury. In exchange, as privatized enterprises, they would pay about $400 million in provincial corporate income tax. They would pay a further $600 million in federal corporate income tax, leaving about $3 billion of after-tax profits for the private owners.

The net loss to Ontario’s treasury from privatizing all Crown corporations would be $3.6 billion per year. If we assume that provincial bonds pay approximately 5% interest, to save $3.6 billion in annual interest charges, the Ontario government would need to reduce its borrowing by $72 billion. In other words, just to break even on privatizing Crown corporations, the Government of Ontario would need to sell them for $72 billion.

I submit to this committee that it would be extremely difficult to sell Ontario’s Crown corporations for anywhere near this sum of money. In particular, it is unlikely that private investors would be willing to pay $72 billion to gain annual after-tax profits of only $3 billion. That transaction would imply a price-to-earnings ratio of 24, very high for mature enterprises.

Having discussed what the Government of Ontario should not do in response to the deficit, I will suggest a strategy to balance the budget over the long term. First, the government should help the economy recover by investing in infrastructure, especially the green infrastructure that will be needed to reduce Ontario’s carbon emissions going forward. These investments should be combined with proactive procurement policies to maximize the amount of investment and jobs that they generate in the province’s private sector.

Second, the Government of Ontario must maintain appropriate tax rates so that provincial revenues will rebound as the economy recovers. In particular, I would advocate maintaining the provincial corporate income tax rate at 14%, rather than cutting it to 10%.

Table 2 in the government document entitled Tax Plan for Jobs and Growth indicates that the corporate income tax cut will reduce revenues by $2.4 billion per year when fully implemented. The implication is that maintaining a 14% corporate income tax rate would increase future revenues by at least this amount. It would eventually increase provincial revenues by more than that amount after corporate profits begin growing again.

This policy would drain very little money out of the provincial economy during the recession because corporate profits are depressed and businesses are currently paying very little corporate tax. In any case, corporate tax cuts are a very ineffective form of economic stimulus. In Finance Canada’s last Budget Plan, it estimated that each dollar of corporate income tax cuts adds only 10 cents to Gross Domestic Product this year and 20 next year. By comparison, each dollar of additional infrastructure spending adds a dollar to Gross Domestic Product this year and $1.50 next year.

These numbers do not come from me. They come from a federal government that is cutting its own corporate income tax rate to 15%.

So, if Ontario were to keep its provincial corporate income tax rate at 14%, the combined federal-provincial rate in Ontario would be only 29%. By comparison, the U.S. federal corporate tax rate is 35% and American state corporate income taxes typically bring the combined total up to about 40%. So, Ontario does not need provincial corporate income tax cuts to be competitive with the United States.

When American-based corporations repatriate profits from Ontario to the United States, they pay the American federal corporate tax rate minus taxes already paid in Canada. The effect of reducing Canadian corporate taxes further below the 35% American federal rate is not to give more money to the Ontario operations of American corporations, but rather to redirect their tax payments from the Government of Ontario to the U.S. Government. Maintaining the 14% provincial corporate income tax rate would retain more of these revenues in Ontario.

Finally, I suggest that Ontario should maintain a corporate capital tax for financial institutions. Table 2 in the Tax Plan for Jobs and Growth indicates that removing the capital tax from banks will cost about half a billion dollars per year. That is one-third of the total cost of eliminating Ontario’s corporate capital tax.

Most Canadian provinces have also eliminated their corporate capital taxes, but several have retained corporate capital taxes for banks. South of the border, President Obama is introducing a new tax on bank liabilities.

Other jurisdictions have recognized that it is legitimate to tax banks somewhat more than other industries because government regulation provides banks with several special privileges and protections not enjoyed by other industries. I encourage Ontario’s government to apply this principle, particularly because it could use the extra revenue.

Thank you.

Second Presentation

This morning, in my role as an expert witness, I explained why the budget deficit is not the most urgent problem facing Ontario. This afternoon, in my role as a witness for the United Steelworkers, I will focus on the more pressing problem of unemployment and policies to create jobs.

Throughout this committee’s deliberations, you will undoubtedly hear many depressing statistics about the grim state of Ontario’s labour market. I will provide only two numbers that are particularly important for my union. Since the financial crisis hit the labour market in October 2008, Ontario has lost 116,000 manufacturing jobs. Since manufacturing employment peaked in November 2002, Ontario has lost a grand total of 327,000 manufacturing jobs.

The appropriate policy response is to enact measures that are directly targeted toward creating jobs. In this context, I will examine Ontario’s Tax Plan for Jobs and Growth. It includes input tax credits through the Harmonized Sales Tax of $4.5 billion annually. It also includes a corporate income tax rate reduction of $2.4 billion annually.

Provincial policymakers must ask whether these tax cuts are the best possible use of nearly $7 billion per year. I will argue that these across-the-board tax cuts are not the best way to create jobs.

A more targeted use of nearly $7 billion, or less money, could create many more jobs. In particular, I will make the case for tax credits for new investment and new hiring in Ontario. I will develop this case with three different concepts of targeting:

- Targeting the economic outcomes that we want.

- Targeting new or incremental economic activity, as opposed to economic activity that would have happened anyway.

- Targeting the industries that are most vulnerable to international competition and most able to move to other jurisdictions.

Ontario’s Tax Plan for Jobs and Growth provides tax breaks for the use of inputs and for the generation of corporate profits. However, the goal of public policy is presumably not to encourage the use of more inputs or to increase profits. I think all members of this committee would agree that the goal is to increase investment and employment in Ontario. So, why not instead institute tax credits that are directly related to investment and/or employment in the province?

A second aspect of targeting is concentrating on new economic activity rather than on activity that would have taken place anyway. Most of the $4.5 billion of input tax credits provided through harmonization will reduce the cost of inputs that Ontario businesses would have purchased in any case. Similarly, most of the $2.4 billion of corporate income tax reduction will be on profits that would have been generated in Ontario anyway. Very little of this funding will go to inputs for, or profits from, new investments.

Of course, I must acknowledge that tax credits for new investment or hiring would provide some money for investments or hiring that would have been undertaken anyway. But at least these types of targeted tax breaks would be directed toward new investment and new workers rather than toward existing facilities and existing employees.

A final aspect of targeting is focusing on those industries that are most vulnerable to international competition and most able to move to other jurisdictions. Some industries, like manufacturing, are completely exposed to foreign competition and very mobile between different parts of the world. For example, it is possible for a factory to close down in Ontario, reopen in China, and continue selling its output into the North American market.

Other industries, like construction, are much more sheltered from international competition and are inherently based in the local economy. For example, it is impossible to construct a building in China, put it on a barge, and move it to Ontario.

Economic policy should be more concerned about the first type of industry. If Ontario can retain a good share of internationally mobile industries like manufacturing, then the provincial economy will prosper and locally-oriented industries will do well as a consequence.

From this perspective, Ontario’s Tax Plan for Jobs and Growth is quite poorly targeted. I draw your attention in particular to table 2 in that document, which indicates that most of the Harmonized Sales Tax’s input credits will go to the construction industry. Specifically, construction will get $2.3 billion out of $4.5 billion. Most of harmonization’s input tax credits are targeted at an industry that is not very exposed to international competition and has very little capacity to relocate to other jurisdictions.

Much has been made of these input tax credits being a boon to manufacturers, who often use inputs multiple times throughout the production process. But I draw your attention to the same table, which shows that manufacturing will get $510 million of input tax credits. That is only about 11% of the total being spent on input tax credits. By contrast, the most recent available Statistics Canada figures indicate that manufacturing accounts for 17% of Ontario’s Gross Domestic Product.

So, the input tax credits delivered through the Harmonized Sales Tax will provide disproportionately little support to manufacturing, an industry which I would argue is disproportionately in need of support. In fact, manufacturing would have been better served had the provincial government simply distributed the $4.5 billion according to shares of Gross Domestic Product.

The corporate income tax reduction in this same tax plan is also very poorly targeted. The single biggest beneficiary will be the financial services industry, excluding insurance. In other words, banks will gain the most from the corporate tax cut.

Thank you.

Those contradictions were highlighted by the approval the other day of a new EnCana natural gas facility in BC’s Northeast that will add over 2 million tonnes of CO2 per year to BC’s inventory when fully built out. From the Tyee’s coverage:

The province’s effort to curb greenhouse gas emissions is on course to suffer a 2.17 megatonne-per-year setback, after an environmental assessment (EA) certificate was approved for the $800-million Cabin Gas Plant last Thursday (Jan. 28). The green light to the EnCana-led project signals the onset of a shale gas boom in the million-acre Horn River Basin north of Fort Nelson.

… The carbon dioxide implications get larger when considering the end uses of the gas. The initial volumes of gas produced daily at the plant would add up to 7.9 million tonnes of emissions each year when combusted. At full production, that downstream emissions rise to nearly 16 million tonnes — nearly 25 per cent of B.C. emissions, based on a 2007 baseline. Much of the gas will be exported to the United States.

Campbell’s retort is that natural gas is “actually a bridging technology that allows us to move to the new cleaner energies.” There is something to this arguement, and it might even be true if we were able to guarantee that coal-fired power would be shut down in place of natural gas generated power. But no such guarantees are evident in this deal. All emissions will be additional to current emissions.

And not only that, the much-lauded carbon tax does not even apply to most of the emissions from oil and gas development, as it does not cover the flaring and venting of gas, or pipeline leaks.

This further goes to show that there is no political will in Canada to say no to the oil and gas industry. At some point we will have to confront the, er, inconvenient truth that the only bona fide sustainable path forward is to not get our energy out of the ground, or if we do to mandate that the emissions must be buried (sequestered) after combustion. That is, we need a moratorium on new oil and gas projects unless they implement carbon capture and storage (CCS).

So the question for my friends in the environmental movement: is now a good time to revoke that award to Premier Campbell, and replace it with one of the more notorious Copenhagen awards, the Fossil of the Day?

The obvious limitation of part-time jobs is that they provide fewer hours of paid work and hence less income. Statistics Canada’s R-8 unemployment rate, which includes discouraged workers and a portion of those part-timers who would prefer full-time work, rose to 12.3% in January.

In addition to providing fewer hours, part-time jobs typically pay less per hour. The wage figures from today’s Labour Force Survey indicate an average hourly rate of only $15.71 for part-time jobs, compared to $24.18 for full-time jobs.

Over the past year, wages rose by just 1.4% among part-time workers versus 2.1% among full-time workers. Part-timers are also far less likely to receive non-wage benefits, such as dental or pension plans.

Other Notes

Employment declined in goods-producing industries, but increased more in the service sector. Perhaps reflecting this decline in predominantly male industries, employment fell among men over age 24. All of January’s net job gains were among youth and adult women.

UPDATE (February 6): Quoted in The Hamilton Spectator

In general, my role was not to engage with the other witnesses. The Conservatives asked me about CFIB’s proposal to restrict public-sector pensions so as to remove the discrepancy between public-sector and private-sector workers. As The Toronto Star reported, I argued that a better solution would be extending pension coverage to more private-sector workers.

However, some other elements of CFIB’s presentation also cry out for a rebuttal. Although the official transcripts are not yet online, The Globe and Mail has posted an unofficial transcript that corresponds with my memory of what was said.

The presentation began with an oft-repeated claim:

. . . during our recent recession we actually saw employment in the small and medium-sized business community stable or increasing. . . . What you see with small and medium-sized businesses is they’re an amazingly stable part of our economy. So policies that help them tend to help with job creation and stability overall. Virtually all of the job reductions that happened over the recession came from large corporations.

As I have noted previously, the data does not support this claim. Statistics Canada provides figures on provincial employment by enterprise size. We can compare the third quarter of 2008, the last period before the economic crisis hit the labour market, with the third quarter of 2009, the most recent period for which data is available.

In Ontario, employers with more than 500 workers reduced their combined payrolls by 85,277, a 3.2% cut. Meanwhile, employers with fewer than 500 workers reduced their payrolls by 120,905, a 4.1% cut. Taken together, small and medium-sized businesses have hardly been a “stable or increasing” source of jobs.

CFIB lukewarmly endorsed the Harmonized Sales Tax, which entails a multi-billion-dollar tax break for business, but advocated cutting the rate by 1%. As is customary with proposed tax cuts, the fiscal cost was not discussed.

The Ministry of Finance projects that the 8% provincial portion of the Harmonized Sales Tax will generate more than $20 billion annually. So, cutting it by 1% would cost at least $2.5 billion per year in lost revenue.

Despite proposing to increase the annual deficit by this amount, CFIB also raised alarm about the provincial debt. However, as the NDP finance critic pointed out through some rather effective questioning, Ontario’s provincial debt has increased little more than population and inflation.

Mr. Michael Prue: Yes, a few questions here, just on some of your charts. On page 11, “Provincial Debt per Capita,” you show it going from $10,000 in 1997, or approximately that, to $13,013 today. Was inflation taken into account in this?

Ms. Catherine Swift: I’m not sure.

Interjection.

Ms. Catherine Swift: This is budget paper, so this is real money. This would be real, so no.

Mr. Michael Prue: The reason I ask is, if it was $10,000 in 1997 and $13,013 today - I go back to the chart just before that, it shows inflation in that period was 27.3% - it is almost exactly the same as it was in 1997.

Ms. Catherine Swift: I’ll have to look into that because I didn’t do this particular table, but it’s kind of tough to buy because we haven’t had huge population growth in Ontario.

Mr. Michael Prue: I didn’t do growth because it’s per person -

Ms. Catherine Swift: It’s per capita.

Mr. Michael Prue: Yes, exactly. I’ve taken that one out.

Ms. Catherine Swift: But I’m looking at the overall debt levels.

Mr. Michael Prue: Just the inflation, $10,000 and 27% on top of that, would take it a little over $12,800, approximately, in there, and if it’s at $13,000, that’s only minuscule. Given everything that’s happened in the last year, that’s a minuscule increase.

Ms. Catherine Swift: But I don’t believe Ontario ever paid anything down on its debt.

Mr. Michael Prue: Okay.

Ms. Catherine Swift: Did it? It has just added to it. It wasn’t like the federal situation. Ontario never paid anything down.

http://www.wifo.at/wwa/jsp/index.jsp?fid=23923&typeid=8&id=37001&display_mode=2&language=2

The abstract follows:

The idea of introducing a general financial transaction tax (FTT) has recently attracted rising attention. There are three reasons for this interest: First, the economic crisis was deepened by the instability of stock prices, exchange rates and commodity prices. This instability might be dampened by such a tax. Second, as a consequence of the crisis, the need for fiscal consolidation has tremendously increased. A FTT would provide governments with substantial revenues. Third, the dampening effects of a FTT on the real economy would be much smaller as compared to other tax measures like increasing the VAT. The paper summarises at first the six main arguments in favour and against a FTT. It provides then empirical evidence about the movements of the most important asset prices. These observations suggest that a small FTT (between 0.1 and 0.01 percent) would mitigate price volatility not only over the short run but also over the long run. At the same time, a FTT would yield substantial revenues. For Europe, revenues would amount to 1.6 percent of GDP at a tax rate of 0.05 percent (transaction volume is assumed to decline by roughly 65 percent at this rate). In the UK, tax receipts would be highest. Even if only transactions on exchanges are taxed in a first step (at a rate of 0.05 percent), a FTT would yield 3.6 percent of GDP in the UK. In Germany, FTT receipts would amount to 0.9 percent of GDP in this case. If a FTT is introduced in the UK and in Germany at the same time, neither country needs to fear a significant “emigration” of trading. This can be presumed because roughly 97 percent of all transactions on exchanges in the EU are carried out in these two countries.

That forecast strikes me as pretty much bang on or even optimistic if you accept the average forecast of  2.6% real economic growth in 2010. To eat into unemployment, the economy must grow by at least that much given that (1) the working age population is growing by a bit over 1% per year; (2) trend labour productivity growth is at least 1% per year, and may well move higher given recent stagnation of productivity as output fell  faster than employment and (3) the fact that the labour force participation rate is likely to increase at any sign of recovery (it has fallen by by 0.7 percentage points since the recession began in October, 2008.)

So, no recovery for the unemployed. I await banner headlines, and  demands from all sides that the upcoming federal and provincial Budgets focus on jobs, as called for by the CLC in a letter to federal and provincial leaders. http://www.canadianlabour.ca/national/news/dont-cut-back-stimulus-spending

Sophie Freeman: SFreeman@Oxfam.org.uk

Dear G20

As economists from across the world, we call on you to implement a financial transaction tax (FTT).

This tax is an idea that has come of age. The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society.

Even at very low rates of 0.05% or less, this tax could raise hundreds of billions of dollars annually and calm excessive speculation. The UK already levies a tax on share transactions of 0.5%, or ten times this rate, without unduly impacting on the competitiveness of the City of London.

This money is urgently needed. The crises of poverty and of climate change require an historic transfer of billions of dollars from the rich world to the poor world, and this tax would offer a clear way to help fund this. Given the automation of payments, this tax is technically feasible. It is morally right. We call on you to implement it as a matter of urgency.

This “cascading” tax allegedly weighs heavily on manufacturing, where multiple stages of production are frequently divided between different firms. The implication is that the Harmonized Sales Tax’s input tax credits for business will be a particular boon to manufacturers.

I have always been sceptical of this claim because the existing sales tax already exempts almost all of the machinery and equipment used in manufacturing. Ontario’s Tax Plan for Jobs and Growth, a fascinating (if obnoxiously titled) document released by the provincial government late last year, confirms my scepticism.

Table 2 indicates that, when fully implemented, the input tax credits will give $4.5 billion per year to businesses. Manufacturers will receive $510 million, 11% of the total.

By comparison, the most recent Statistics Canada figures indicate that manufacturing accounted for 17% of Ontario’s Gross Domestic Product in 2008. So, the Harmonized Sales Tax will provide disproportionately little benefit to manufacturing.

Construction companies will collect most of the input tax credits: $2.3 billion out of $4.5 billion. Building materials are indeed the main business input currently subject to Provincial Sales Tax.

Construction is an important part of the economy and has been hit by the recession. However, focussing tax breaks on construction companies is a strange approach to competitiveness.

By its very nature, construction is a locally-oriented business sheltered from external competition. Construction must occur where the building will be located. It is not feasible to construct buildings in other jurisdictions and import them to Ontario. Construction activity depends on the demand for buildings in the province, rather than on whether Provincial Sales Tax applies to construction materials.

The other columns posted are well worth a look.

http://column.global-labour-university.org/

Statistics Canada also revised upward its previously released figures. GDP grew by 0.3% instead of 0.2% in October and 0.5% instead of 0.4% in September. While these figures are encouraging, they imply a slower annual growth rate than the 5.7% reported today by the U.S. Bureau of Economic Analysis for the fourth quarter.

Amount of Growth

Real GDP (in chained 2002 dollars) fell from a peak of $1,241 billion in July 2008 to a low of $1,185 billion in May 2009. Today’s figure is $1,201 billion for November 2009.

Canada’s economy fell into a deep hole and has climbed more than a quarter of the way out. After rising by $5 billion in November, annualized output is $16 billion above the bottom but still $40 billion below the top. If real GDP continued to expand by $5 billion per month, Canada would return to pre-crisis output in the third quarter of this year.

However, a return to pre-crisis output does not necessarily imply a return to pre-crisis unemployment. Given any productivity improvement, businesses will be able to produce the same amount of output with fewer workers.

Even a return to the same level of employment would not provide enough jobs to keep up with the continued growth of Canada’s population and potential workforce throughout the crisis. Job creation, as opposed to cutbacks, should be the focus of upcoming federal and provincial budgets.

Type of Growth

November’s growth was driven by natural-resource extraction and wholesale trade. The latter can be a barometer for the wider economy because it links production to retail and export markets.

One hopes that the rebound in wholesale trade presages a coming rebound in production. However, manufacturing output was completely flat in November.

November’s growth was uneven between industries. However, it looks more sustainable than October’s growth, which had been concentrated in utilities and real estate.

Indeed, he writes so well that he is a regular contributor to the writerly The New Yorker, with a delightful piece, at least for progressive economists, in the January 11 issue of this year (since his book was published) on the trials and tribulations of the Chicago School in the aftermath of the financial crisis that was not supposed to happen. Interestingly, Robert Lucas of rational-expectations fame - who, says Cassidy, defines rationality “as having a mathematically correct model of the entire economy in your head and acting upon it” - simply refused to give an interview to Cassidy. If Lucas is made mute by the crisis, the world is already a better place.

If there is a single phrase that seems to encapsulate the failure of the efficient market crowd, it may be “the herding instinct.” Each free marketeer may imagine that he or she is behaving rationally but the behaviour of the herd, which is overriding, is a different matter.

It is said that you can’t herd cats, but how about bulls and bears? The illusion in financial markets is one of rationality, but the reality is frenzy and mayhem and episodic crises. To the well known Madness of Crowds, let us add the Hubris of Herds.

There have always been those economists who knew that. They were just ignored by the profession, itself being powerfully subject to the herding instinct with its practice of odd person out. The hero of Cassidy’s story is Hyman Minsky who never gave up insisting that what the great Keynes taught us, if we would but pay heed, was that instability lay at the core of capitalism because of irreducible uncertainty about the future, and that financial regulation was a necessary even if necessarily insufficient policy.

But Minsky taught for most of his academic life at Washington University in St. Louis, at the outer margins of the conventional wisdom, and never got a Nobel Prize in Economic Science - that word “science” should have been the giveaway; there is slight hope for our profession until the Swedes remove it and reward simply Economics - while more than half a dozen went to the Chicago Boys.

Who else got it right according to Cassidy? Well, would you believe, the Marxist economists around The Monthly Review, notably Paul Sweezy who insisted throughout the decades after World War II that the financial sector had taken over the world and a price would have to be paid.

“The worldwide slump demonstrated,” writes Cassidy of the present calamity, “that Minsky and Sweezy had been right when they said the fortunes of the economy at large couldn’t be divorced  from what happened on Wall Street.” Would that they had survived to witness their vindication.

Perhaps predictably for an American writer, the greatest of the culprits are Greenspan - “more than any other individual, the former Fed chairman was responsible for letting the hogs run wild” - and those at the Fed and beyond who paid fealty to him. That includes Ben Bernanke - whose inability to see a housing bubble  and the subprime bust as late as October 2007 Cassidy calls “a failure of imagination” - and, it seems to this writer, it is a sign of Obama’s want of economic populism, and his consequent political weakness of Main Street, that he insisted on fighting for his reappointment.

And, difficult though it still is for me to admit, what American economists (plus Sir John Hicks in the U.K.) did to Keynes is, as Cassidy argues, very much part of the problem. I studied at MIT in the 1950s when it was arguably the greatest economics department in the world and the prime place where Keynesianism was bastardized (in Joan Robinson’s telling phrase), the better to marry microeconomics and macroeconomics in the Neo-Classical Synthesis popularized by my mentor Samuelson with its magical fine tuning of capitalist economies. It was all too good to be true and its false promises created the opening for monetarism and all the other sins that were even worse in theory and in practice than a juiceless, stable, self-sustaining Keynesianism.

Cassidy is encyclopedic in listing all the other market failures: carbon emissions that cause global warming and extremetries of climate; monopoly power; obscene CEO pay; Galbraith’s “private affluence, public squalor”; R&D; etc., etc. But his main story is the financial crisis and the inability of money markets to self-regulate, for there’s no market failure that quite catches the eye like systemic bank failures and a burgeoning economic crisis.

So what is to be done? Cassidy is right to see a ray of hope in the new behavioral economics that rejects the simplistic logic of rational behaviour that has ruled our lives too long. If it will cause economics to abandon the utopianism that has gripped it in the last half century plus, and to admit that markets must be regulated, it will be a move forward. To expect more from our mainstream colleagues at this moment is probably unrealistic.

Meantime, let us all (re-)read The General Theory (I didn’t as a graduate student at the world headquarters of Keynesianism), and read Minsky and The Monthly Review, and thank Cassidy for his swabbing of the imperial decks. And wake me up if anything novel and exciting is happening in the mainstream Canadian profession.

(While the views expressed here are my own, I am grateful to John Hutcheson for urging me to read How Mar kets Fail, and for giving me a xerox of an excerpt from Minsky’s 1975 book John Maynard Keynes that he use in a course he teaches at York University.)

http://www.policyalternatives.ca/newsroom/updates/ei-isnt-working-canadas-unemployed

I can’t complain about lack of media coverage of this report, which got some welcome pick-up, though I do think there is usually massive media indifference to the plight of the unemployed victims of the Great Recession. Continuing unemployment of over 8% well into 2011 seems to have become the acceptable new normal, without thought being given to the human consequences.

There are a lot of personal stories posted among the many comments on our study on the CBC web site - and enough push back from those who think the unemployed are to be blamed for their own fate to tell us why EI usually falls well down the political agenda.

http://www.cbc.ca/money/story/2010/01/25/ei-benefits-running-out.html

This conclusion is based on a very simple, yet effective measure of housing affordability: the ratio of median housing prices to the median household income in each municipality (housing market). This price-to-income ratio measures how many years the median family (the one in the middle of the income distribution, where half of all families earn more and half earn less) would need to work to earn as much as the median house costs. Typically, a housing market is considered affordable if 3 (or fewer) years of household income is sufficient to purchase a home in the area.

In Vancouver, however, the median housing price - $540,900 - is equivalent to 9 years and 4 months of the median household income of $58,200 (both are measured in the third quarter of 2009). Wow, just wow.

The rest of BC’s urban areas aren’t doing much better: 4 of the 5 least affordable housing markets in Canada were in BC. In order of lowest affordability, these are Vancouver, Victoria, Abbotsford and Kelowna. The next least affordable housing in Canada is in Toronto.

If you’re curious, the 5 affordable urban housing markets in Canada are Thunder Bay, Windsor, Moncton, Saguenay and Saint John, NB.

What can we do about the rising unaffordability of housing in BC?

First off, we need our policy-makers to recognize that housing affordability is a serious problem and begin to monitor it regularly so they can measure their progress in addressing it (targets and timelines, anyone?). Here’s where I agree with the assessment of the folks at the FIPP that in Canada

housing affordability has received little or no political attention, even in the bubble markets where booms escalated housing prices to unprecedented heights.

It’s time for this to change.

What kind of policy reforms should we be looking at? The folks at the Frontier Institute for Public Policy recommend a market approach of relaxing zoning regulations and getting rid of agricultural land reserves, which they argue will reduce the price of land and thus the price of housing. Increase supply to lower prices - a standard textbook economics solution, but in this case it’s not going to work.

No matter how far you take it, eventually there are hard limits to low-density sprawl. We’ve got only so much land to fill with single family homes before we run out. Paving over agricultural land may postpone the problem for a few more years, but it’s not a long term solution. Moreover, as we prepare to face climate change and peak oil, encouraging urban sprawl may well do more harm than good. And if our world is about to get a lot smaller, paving over agricultural land would soon prove to be short-sighted.

It seems to me that we’ve left the invisible hand work its magic in the housing market long enough by now to know what it is good and bad at. It does an excellent job of providing luxurious condos with ocean views to the highest bidder (and we don’t lack millionaires in BC), but it fails miserably at providing affordable housing to the hundreds of working families. And I’m not just talking about the poor or near poor here - whose situation is dire - but about families with two earners with decent middle class jobs who are finding it more and more difficult to afford a home in the city. It’s time for governments at all levels to intervene in the market and ensure that a share of the new homes build are priced so that they are affordable for middle income families.

And since affordability is not just about housing prices, but about household incomes as well, I’d like to see some action on the income front. A couple of decades of making our labour market more “flexible” have resulted in stagnating earnings at the middle, and falling real (inflation-adjusted) earnings for families in the lower end of the income ladder. We need to address the rising income inequality and increase the economic security of the poor and modest income households. This can be done both through strengthening labour law and through re-distribution via the tax system.

This paper released by BC Finance Minister Colin Hansen for the provincial/territorial ministers indicates much more fundamental problems with our pension system than those identified in the Mintz Report and gives serious consideration to the option of CPP expansion

http://www.fin.gov.bc.ca/pension_plan_options_paper.pdf

But having said that, my home province of BC and Canada as a whole have become a lot meaner in recent years. Sure, the good life is still attainable if you have a good job and bought real estate before prices took off, whether due to that good job or through an early inheritance from the folks (itself a growing source in inequality as the boomers hit retirement). But as the song (and a CCPA report) goes, it’s a bad time to be poor.

As we show our Olympic pride at having a crew of multi-million-dollar-a-year hockey players come to Vancouver to play for the home team, let it be known that BC has the lowest minimum wage in Canada at $8, and that has not changed since 2001. In case you were wondering, for a minimum wage earner to pull in what Sidney Crosby earns in just one year, they would have to work 40 hours a week for 541 years (and I’m not even counting Crosby’s signing bonus and endorsement contracts).

You know the rest of the story: social assistance rates that are preposterously low and a system that is punitive; a lack of supports for child care; the end of new social housing construction; an over-crowded public transit system; cutbacks at schools and libraries; and so on.

In my work on climate action, it seems inevitable that the price of food, transportation and energy are going up if we are to be successful at reducing emissions. How we go about designing climate actions matters a lot, and this is the focus of my recent work. But most of the affluent people who go to policy meetings are not thinking about how higher prices affect low income people. Across all of these areas, the problem low income people face is, well, their low income, even though they have done the least to contribute to the climate crisis.

So in the absence of “first-best” solutions like raising the earning power of low income workers and setting a floor (basic or guaranteed) income for all, we are left with “second-best” solutions that try to fix regressive impacts on an issue by issue basis. A credit here, a subsidy there and an ugly patchwork everywhere. Which is already a huge problem: after about $20-25,000 per year low-income credits and subsidies phase out for the low-but-not-lowest-income workers, meaning they face marginal tax rates of 60-70% on new income earned. With the carbon tax and now the HST, the same dynamic has been exacerbated with low-income credits that phase out early and quickly.

Still, I think that a more coherent credit system could be the basis for a guaranteed income, but it would have to be designed more like the credits we give to the middle-class, like Old Age Security and the Canada Child Tax Benefit, which have a long tail phase out so that a very high proportion of families get something. A lot of economists agree on this type of redistribution. But they generally think only about redistributing after the fact. I also want to see the labour market do more of the heavy lifting, as it gives workers and taxpayers the sense that they have earned that income, and this makes for better social inclusion and better political sustainability. Doing that means expanding the scope and quality of public services, raising minimum wages and, perhaps more importantly, vastly expanding the unionization of the low-wage service sector.

So Canada, let’s take that generous spirit we discovered when Haiti got trampled by an earthquake and put it to work at home. A campaign of charitable giving is of course helpful and there are lots of great organizations doing the work that governments ought to be doing. But let’s also focus on electing governments that are going to make eradicating poverty a top priority, something no political party (including the NDP) has endorsed.

http://www.cdhowe.org/pdf/backgrounder_122.pdf

As was, no doubt, intended, this intervention set off alarm bells about taxpayers being on the hook for supposedly over generous pension plans for public sector workers, and distracted attention from how to fix the major problems in the private part of our pension system.

It turns out that the main difference between Robson and federal government actuaries and accountants is the assumption about future real rates of return on invested assets. The current assumption is a 4.2% real rate of return (identical to the assumption of the Canada Pension Plan and many private sector plans), while Robson says it should be the rate of return on inflation indexed long term government bonds, currently less than 2%.

Robson argues that “theory and evidence have discredited a widespread view that long-term investors can count on equity instruments yielding a sizeable premium over lower risk debt instruments.”

It is true that rates of return on investment have fallen in recent years and have, in combination with very low interest rates, caused funding problems for all kinds of pension plans. Some actuaries have, as a result,  become a rather gloomy lot.

Still, it is somewhat surprising that Bill Robson, who can I think be fairly described as a fan of free market capitalism,  would endorse the view that we live in a world where rates of return on private capital will be nothing short of dismal for the foreseeable future. If he is is right, we surely face much bigger problems than unfunded pension liabilities.

Following these declines in recipients and in unemployment, the proportion of officially unemployed workers receiving benefits was 50.6%. The EI program is still allowing about half of unemployed Canadians to fall through the cracks.

Also troubling in today’s report was that 1,300 more EI claims were filed in November than had been in October. For several months, falling claims appeared to confirm a slowing pace of layoffs. One hopes that November’s rise in claims will turn out to have been an aberration.

Beneath the national figures, there were some striking regional differences. While the number of EI claims filed in Ontario jumped by 6,600, it dropped by 4,200 in Quebec. Alberta had 1,200 more EI recipients and 1,000 more claims filed. These figures are not indicative of a labour-market recovery in Ontario or Alberta.

Most of my research these days has been on the big topic of what aggressive change looks like: where we need to get to and what the justice issues are in the transition. This is the essence of our SSHRC-funded Climate Justice Project. We did some early research on greenhouse gas targets for 2050, and found that BC needed a 94% reduction to get to an emissions level that was sustainable and equitable globally.

But these days I’m loving the logic of zero. The City of Vancouver’s Greenest City Action Team made such a recommendation of zero fossil fuels by 2040, and so I’ve tried to adopt that as a goal for projects. One could certainly argue it is not aggressive enough, but it is definitely realistic. Most of the capital stock of society turns over within a 30-year time span, which means a lot of action could be addressed with minimal impact by setting strict marketplace standards. Beyond this are some major structural issues that have to do with housing, neigbourhoods and transportation, but with good planning this too seems do-able.

For example, in the UK all new homes built after 2016 must be zero carbon. This means, according to a Q&A in the Guardian:

Three words are key in the zero-carbon world: insulation, insulation and insulation. And maybe “airtightness” too. Most of Britain’s housing stock is what’s called “leaky” in the sense that buildings lose heat through badly insulated walls and roofs as well as through draughty windows. In zero-carbon homes all that changes – walls are heavily insulated, floors and roofs keep heat in, and triple-glazed draught-proofed windows stop warmth flooding out. … Many have heat exchangers in the loft through which the warm, stale air from in the house is expelled while fresh air from the outside is drawn in, picking up the heat on the way to avoid wasting it. This means the building can pretty much heat itself from the body warmth of its inhabitants, cutting heating bills virtually to zero. This is all in winter, of course. If the house feels too warm in the summer, you just open the window.

For vehicles, I’d suggest something like banning the sale of new vehicles with internal combustion engines by 2025 (with some targets for hybrids and electric vehicles along the way), and banning them from the road entirely by 2040. In the interim, urban planning will need to be supercharged to reduce the need for cars in the first place by developing more compact communities where it makes more sense to walk or bike for the vast majority of trips, but also a more aggressive deployment of public transit.

As in vehicles, eliminating fossil fuels means finding sources of clean electricity to power what we do, in particular the heavy industry that makes stuff we like. There are massive efficiency gains to be had from our existing suite of appliances and gadgets that can get us some breathing room, but new sources will be needed, from the small home/neighbourhood scale up to the regional/provincial. This is all do-able — what is standing in the way are the vested interests of the fossil fuel industries.

Then again, perhaps zero is not completely attainable. There will inevitably be need for back-up supplies and some transportation services (airplanes and ships) that need energy dense fuel. Technically, there is small bit of greenhouse gas emissions that can be absorbed by the Earth, which might give us some wiggle room, but there is also evidence that those sinks are getting clogged, and if scientists like James Hansen are right we need those sinks to reduce the absolute level of GHGs in the atmosphere.

The best hope for flying and shipping is biofuels, but they will be competing with food supplies and other potential uses of land, so real reductions in air travel and shipping seem inevitable (goodbye, one-week golfing trip to Mexico). That dynamic may well happen sooner rather than later due to escalating prices from peaking oil supplies. While a lot of the changes need for climate action need not affect our quality of life, and may in fact improve it, reductions in air travel and shipping may be the hardest ones to swallow.

The annual inflation rate rose only due to a lower base of comparison. In other words, consumer prices had fallen even more between November and December of 2008. Going back a little further, the Consumer Price Index is still a full point below its pre-crisis peak (114.8 in December 2009 versus 115.8 in July 2008).

The Bank of Canada’s core inflation rate remained level at 1.5%, well short of the 2% target. Today’s data validates the central bank’s decision to keep interest rates at rock-bottom levels. The prospect of having to raise rates to quell inflation is far away.

On the contrary, the Bank of Canada should be contemplating monetary expansion to quell the Canadian dollar’s excessive rise. The loonie has recently run up above 96 US cents, the level envisioned by the last Monetary Policy Report.

The OECD’s most recent figures on purchasing power parity indicate that the Canadian dollar should be worth 86 US cents. That level would be far more conducive to a recovery of output and employment in Canada’s export industries.

UPDATE (January 21): Quoted by Bloomberg

The Pittsburgh G20 Summit charged the IMF with looking at how the financial sector might contribute to the cost of financial bailouts, and is holding consultations which might yet put an FTT on the Toronto G20 agenda. I’m not holding my breath given that the idea has been ruled out of hand by US Treasury Secretary Timothy Geithner (and Finance Minister Flaherty), but the adamant opposition of Wall Street and Bay Street and the City of London to taxation and regulation just doesn’t have the same political purchase it it used to. Certainly progressive economists have an opportunity to push a good proposal forward.

The basic idea of a transactions tax is to raise money by levying a low rate of tax (usually put at 0.05 to 0.5%) on financial sector activities which are seen to be of limited utility or even damaging to the real economy. Keynes called for a tax on equities trading to reduce the froth of short-term speculative behaviour which had noting to do with real investment. Tobin wanted to give greater weight to economic fundamentals and to central banks when it came to the setting of interest rates in the world of opportunity for speculation opened up by floating exchange rates. A low transactions tax, it is argued, has little or no impact upon useful, longer term transactions, but limits noise trading and very short-term “in and out” speculation. Progressive economists who have advocated a FTT (notably Dean Baker of CEPR and Robert Pollin of U Mass Amherst) believe that it would reduce speculation and volatility, without interfering with normal and useful activities including stock and currency trading and even hedging for legitimate purposes. That view has been endorsed by Stiglitz and Krugman.

Until quite recently, many countries did tax some financial transactions. The UK still levies a 0.5% tax or stamp duty on equity trades which raises a useful 0.2% of GDP and does not seem to have strangled the golden goose of the City of London. Most proponents think it is possible to levy low taxes even in the face of tax and regulatory arbitrage. But the case for an international co-ordination of transaction taxes in a world of deregulated and competitive financial markets is clearly very strong.

To my mind, there is a strong case for a globally co-ordinated FTT. But there is also a need for a bit more clarity on goals and designs.

It is unclear to me if an internationally co-ordinated FTT means all countries levying the same taxes at the same rates on the same sets of transactions – or some loose co-ordination of national initiatives. The lion’s share of revenues under the first formula would go the to the US and UK which account for the majority of equity and forex trading.

Under any FTT, as with all sin taxes, there will be a tradeoff in setting the rate between revenue generation and discouraging sinful behaviour. The FTT has come up for discussion for the excellent reason is that it is a good way to raise money – effectively levying bank fees on bankers who deserve to be hit for their past and current excesses and to recoup the cost of bailouts. We are on weaker ground to suggest that a very small tax will have a huge impact on speculation and market volatility. It will probably help, but reigning in financial excesses will also require much more government regulation of financial markets.

There is a need for clarity on what an FTT would cover beyond currency, equity and bond trading. To my mind it would be useful to tax commodities markets as well to help curb some of the wild price gyrations we have seen in, for example, the oil markets. It would be useful to tax derivatives trading as well, but that can only be done if all such trading is done through organized markets rather than “over the counter.”

There is also a need for more clarity on where the money should go. The Economic Policy Institute in the US have called for an FTT to fund a new Obama stimulus program. Others want to pre finance past and (potentially) future bank bail outs. Many NGOs see Tobin taxes and FTTs as a means to fund global poverty reduction and climate change initiatives. It might be useful to mobilize around the goal of spending half of the proceeds domestically, and another half internationally.

http://column.global-labour-university.org/2010/01/why-we-should-care-about-wages.html

“Focusing on unemployment rates alone understates the true extent of the deterioration of employment and conditions of work in labour markets. Everywhere, the crisis has led to cuts in working time, which has damaged the living standards of workers and their families. In the 27 member states of the European Union, full-time employees work about three-quarters of an hour less every week than they did before the crisis. In the US, weekly working time for production and nonsupervisory workers has fallen by about half an hour. These average changes may seem relatively small because not everyone was affected, however, for those who were hit, the cuts in hours have often been severe. Similar trends have been observed elsewhere and, globally, the number of involuntary part-time workers appears to have increased. The result, in most cases, has been a fall in take-home pay for workers at the end of the month. Figures collected at the ILO for 53 countries show that in 2008 real monthly wages (i.e. wages adjusted for inflation) fell in one quarter of all countries. In most other countries, particularly developing countries, wages continued to grow but at a much slower pace than before the crisis. The situation is likely to have been even worse in 2009, given the quarterly figures already available and the increase in the supply of unemployed people looking for jobs.”

In Canada, there has been a modest but not trivial cut in average working hours - from 35.1 to 34.9 hours between December, 2008 and December, 2009. (Labour Force Survey data, not seasonally adjusted.)  The average hours of part-timers have been especially impacted - down from 17.1 to 16.9 hours over the same period. Hours of full-timers fell slightly from 39.3 to 39.2.

Changes in hours combined with changes in average hourly earnings mean that, between December, 2008 and December, 2009 - average weekly earnings of full-time workers rose by a modest 2.25%, while average weekly earnings of part-timers rose by just 0.9%, likely  slipping slightly below the  inflation rate which was 1% in November.

Over the last year, the part-time rate (seasonally adjusted) rose from 18.6% to 19.0%, driven by a jump from 45.5% to 46.8% among youth, and from 7.0% to 7.9% for men aged 25 and over. (The rate fell for women  aged 25 and over.)

In sum, on top of the jump in unemployment, we have seen not just a shift to part-tie jobs, but also signs of slippage  of real wages for Canadian part-timers.

However, the Conservatives do not seem to be setting the stage for large cuts. On the contrary, they are sensibly arguing that fighting the recession takes priority over fighting the deficit. They plan to slowly balance the budget over several years by holding spending increases below the rate of economic growth. This approach entails a gradual erosion of the share of economic resources available for public purposes, but not immediately objectionable cutbacks.

For those of us who believe in public services, a better approach would be to reverse some of the Conservative tax cuts, which Finance Canada estimates will cost $44.4 billion per year in lost revenue by 2013-14. But since the Conservatives ostensibly believe in smaller government, it is worth asking why they are not angling to slash public spending.

A simple review of federal expenditures provides much of the answer. The federal government spends money on three things: transfers to individuals (Old Age Security, Employment Insurance and child benefits), transfers to provincial governments, and federally-delivered services. The Conservatives have pledged not to cut either type of transfer.

The federal budget indicates that major transfer programs account for just over half of federal spending, leaving the remaining half potentially vulnerable to Conservative cuts. However, the Public Accounts demonstrate that many federally-delivered services actually include significant cash transfers to people, businesses and other governments.

In 2008-09, the last complete fiscal year, the federal government spent $108.1 billion on major transfer programs, $30.2 billion on transfers through other programs, and $69.6 billion on federal departments and agencies. If all transfers are untouchable, then only one-third of federal expenditures are eligible for cuts (i.e. $69.6 / $207.9 = 33%).

Out of that third, National Defence was $18.8 billion and Public Safety was $8.9 billion. If anything, the Conservatives would like to spend more in these areas. The Canada Revenue Agency was $7.1 billion and the Treasury Board was $2.2 billion. These entities are presumably indispensable in collecting taxes and managing expenditures. Crown-corporation expenses were $8.1 billion, funding needed to deliver the mail, insure mortgages and generate Crown-corporation revenues.

Excluding these expenditures leaves only $24.5 billion from which the Conservatives could realistically cut. To put that number in perspective, it is less than half of this year’s deficit, about half of the deficit projected for 2010-11, and a few billion below the deficit projected for 2011-12. So even if the Conservatives completely eliminated the federal departments of Agriculture, Environment, Fisheries, Foreign Affairs, Health, Human Resources, Indian Affairs, Industry, Justice, Natural Resources and Public Works, they would still not save enough to balance the budget next year or even the year after that.

Ottawa writes large and important cheques to seniors, unemployed workers, parents, and provincial governments. But as an institution, the federal government is no longer very large, especially if one excludes the military and security forces. There is simply not much room to cut.

Therefore, I tend to believe that the federal government will just try to restrict spending growth and wait for revenues to recover along with the economy. As Carl Sonnen suggested to Straight Goods, the real and imminent threat of cutbacks is from provincial governments.

UPDATE (January 21): With Stockwell Day’s appointment as President of the Treasury Board, Conservative rhetoric appears to be turning away from waiting for economic recovery to balance the budget and toward cutbacks. However, it remains unclear to me what they will cut, if transfers are really sacrosanct.

It notes one interesting feature of the current (recent?) downturn - low and even negative productivity growth have limited the impact of the sharp GDP decline on jobs in Canada, whereas in the US employment has been cut significantly faster than output.

http://www.statcan.gc.ca/pub/11-010-x/2010001/part-partie3-eng.htm

Why the difference?

“The reasons for the greater reliance of employers in the US on job cuts in 2008-2009 while Canadian employers resorted about equally to changes in the average workweek and employment are not yet clear. Credit flows to firms in the US were more impaired, providing a greater urgency for firms to achieve significant cost savings. As noted earlier, employers initially rely on shorter hours than job cuts in a downturn given the uncertainty about the severity of the recession: the upheaval in the US financial system, which clearly signalled a sharp downturn, meant that there was less uncertainty in that country about the severity of the 2008 recession. Labour laws in the US may make for a lower cost in letting workers go than do the laws in jurisdictions in Canada. And the memory of the difficulty in finding workers in some parts of Canada may have led employers to wait until the severity of the recession was fully revealed (which turned out to be less than widely expected).”

I’m not sure I find this very convincing - Canadian labour laws don’t force employers to keep workers they don’t want; and labour shortages were not a generalized problem before the recession. Credit access and the depth of the US crisis may explain things. EI worksharing may also have made a difference here.

The really interesting question is what happens next.  Given working population growth of 1% and expected output growth of about 2.5%, if productivity growth picks up to  the trend rate of about 1% to 1.2% in 2010, unemployment will fall  only marginally. If productivity growth picks up even quite modestly as hoarded labour is put to use,  unemployment will continue to rise.

But we all know, if we bother to think about it, that most economics comes  from a very small number of countries who happen to run the world. The great economists of  the 19th century into the mid-20th were British. Since then they have been American.

Look at how most Nobelists in economics - more so than in science or medicine and certainly than in literature - are Americans. Is it because they have all the good ideas or  because they get to define what is a good idea?  And if you’re not lucky enough to have been born there, then move there; Robert Mundell was born in Canada but won his Nobel by rarely being here.

There is manifestly a deep symbiosis between economic thought and power, and power lies not with nations in general but with imperial powers in particular. Does this explain why economics today, in contrast to political economy, is so insistently apolitical because we would sooner not face up to who we emulate and serve?

We should not be surprised when we read Marion Fourcade’s  Economists and Societies: Discipline and Profession in the United States, Britain, and France 1890s to 1990s, to learn that in the U.S. there have been close ties between the econonics profession and business schools since the 1920s and that disproportionately American Nobelist are affiliated with a business school.

Business schools need economics because without it, she says, they lack an intellectual core but, it seems to me, economics, already too imbedded with power, needs business schools like a hole in the head.

Fourcade is a sociologist of knowledge at Berkeley with a thorough grasp of economics; her book was published last year by Princeton University Press. It is highly recommended. Someone here with similar credentials should do the Canadian discipline as a case study.

Since World War II, she writes, “economic growthmanship was coupled with different political projects across countries, the most salient of which were the building of industrial power in France, redistribution in England, and militay and economic supremacy in the United States.” 

Canada?  How about “tightening economic integration with the United States”? A neo-colonial  branch-plant-kind-of project. Oh, and add “federalism” which has kept so many of us gainfullyemployed over the years.

Fourcade’s choice of countries is fascinating in their own right and just  happen to be the relevant imperial centres for Canada over the centuries. I’n old enough to have been introduced to econmics at the University of Toronto by Brits, with the advantage, that I hadn’t realized till I read Fourcade, of  having imbibed a touch of Fabianism which has served me well.

Quebec economists have retained links with France. To read Fourcade is to sense that economics in France  has a heterodox flavour that has has its attractions to those of  the progressive persuasion. In the 19th century, in contrast to Britain, French economists “held on to a conception of political economy as a moral science.”  It is in France in 2000 that economics students railthed against “overuse of mathematics, hegemony of  neo-classical theory” in the name of autisme-economie.

Fourcade repeatedly tells us that it is to our U.S. colleagues that we owe the discipline’s obsession with markets, to the point where even the public sector is judged by market-based concepts of efficiency. So totally is the political drained out of what began as political economy that the corporation’s existence can be “explained” as an understandable alternative to the market, as by Coase and Hymer, but then ignored as an institution with market influence, to say nothing of political influnce.

Indeed, the imperfect competition revolution of the 1930s has been, with a little help from game theory and its rivalries, swept under the rug.  Hence the utter rejection of Galbraith, who could see the U.S. military-industrial complex, by American economists, whether Keynesian or Chicago School.

Writing before the present economic crisis cast doubt on what we economists know and do not know, Fourcade tells us that “The imperialism of American economicss is rooted in a deep moral belief  that no-one stands outside of economic rationality…”  But the financial crisis has cast the most serious doubts on the meaning of rationaity even within markets. The new behavioral economics, too new to be noted by Fourcade, with its links to psychology, is a breath of fresh air that is potentially deeply subversive of orthodoxy. But this writer fears that behavioral science, with its individualist bias, is a regression from social science, notwithstanding all of its limitations, and is hard put to believe that there will be a real revolution in economics until the political is put back in through the front door. There is no evidence that is about to happen.

In fact, the Olympics are so big, so looming, it is difficult to think of anything else. For years preparations have been underway, as planners have made their plans, and new, gorgeous facilities have been built. It is hard to say how much these activities have increased economic activity in BC. Certainly, given the hot economy in recent years with low, low unemployment, there is a case to be made that most Olympics projects have merely crowded out other public and private sector capital investments. Some measure of Olympic Keynesianism could be cited over the past year as smoothing out the harsh impacts of the recession in Vancouver, but unemployment has still shot up to 8.4% in December, and is now about the same as the national average.

As for the Games themselves, the two-week party that is, there is a lot of money being spent on things like security, and a lot of money from higher-than-normal tourism during that period. I’ve seen some economists attribute a 0.5 percentage point increase in GDP due to the Games. But it seems to me that, like the upfront capital investments, there is a lot of displacement going on — most regular business is being put on the backburner, as projects and offices close down due to concerns about traffic and security perimeters.

My real concern, though, is what happens after the Games. BC will be tabling its 2010 budget shortly after the Games are done, and the big danger is that BC experiences a bad Olympian hangover. The rest of the province is in rough shape: resource industries have been hammered by the decline in US markets; while real estate is showing signs of exuberance, there is not much indication that new construction activity that creates jobs is returning to the highs of 2003-2008; tourism may get an Olympic bump, but a high Canadian dollar and weak income growth is keeping a lot of Americans at home. It is hard to imagine what private sector forces might drive a resurgence of economic growth for the remainder of 2010.

So we need the BC government to step up to the plate in its 2010 budget. Last year, BC brought in very little in the way of stimulus spending, preferring to free ride on federal stimulus dollars. This is at least part of the reason why unemployment rates have doubled in the past 12 months. That situation could get a whole lot worse if the provincial government is as neglectful after the Olympics.

There is a, er, golden opportunity, however. Since the 2008 budget that announced the BC carbon tax and a host of other climate actions, we have seen a whole lot of nada on the climate front. In fact, budget restraint in the past year has closed down some of those actions, like the LiveSmartBC program to retrofit homes to be more energy efficient. Anecdotally, this is drying up business for contractors who do retrofits. So now would be a perfect time, after Copenhagen’s disappointment, to get back on the green file, and make some investments that will create jobs and meet our climate objectives.

BC has a legislated target of a one-third reduction in emissions by 2020 (relative to 2007 levels), but currently we do not have a plan that gets us there. Now is the time for that plan. Think transportation. Think household energy efficiency. Think green power. But also think about avoiding double-digit unemployment.

While this is written mainly as a text for university level courses, others may find it useful as a resource on a wide range of labour market issues and trends, including the role of unions.
The book can be ordered from CSPI or from Chapters ($36.26)

http://www.chapters.indigo.ca/books/Work-Labour-Canada-Critical-Issues-Andrew-Jackson/9781551303666-item.html

From the Publisher:

Now in its second edition, and with a new foreword by Wallace Clement, this original and timely book focuses on critical issues surrounding work and labour in Canada. It examines changes in the labour market and in the workplace, with a strong empirical component based upon the most recent Statistics Canada data. An ideal text for Sociology of Work, and a wide range of courses in Labour Studies and Industrial Relations programs across Canada. New to this edition:

All chapters substantially revised and thoroughly updates.

A discussion on the causes of the current economic crisis and its roots in the labour market, including a special appendix.

More emphasis on the fortunes of racialized Canadian-born workers as opposed to recent immigrants.

Brand new chapter on young workers.

Up-to-the-minute newspaper articles on the current global economic crisis.

Added material on occupational health and safety, emphasizing the connection between work and health.

New material on workers’ rights as well as non-standard and precarious work.

From the Foreword by Wallace Clement:

“Work life is fundamental to how we experience life in general. Most of us work to live but many of us also live to work. We gain our quality of life, identities, and much of our sense of meaning from our work lives. And, the link between work life and family life and/or leisure and education is also shaped by the quality of our work lives—our hours of work, its rewards, self-esteem, and social interactions. It is important to have a holistic view of work—that it is embedded in a series of economic, political, social, and cultural forces. Equally important is what we call “work”—whether for pay or not (volunteer, domestic work, etc.)—and recognize that the essential reproduction of citizens through care work is to be valued. How we understand work in terms of how we frame it as a value for individuals and societies matters. Work does not just happen. It is created, conditioned, and destroyed by the political economy in which it is embedded.

For these reasons, it is important to acknowledge the contribution of Andrew Jackson’s Work and Labour in Canada. It is a book designed to inform and educate its readers. Clearly, he has done a great deal of thinking about the right questions to ask and how to frame our understanding. He offers fresh ways to think about changing times by locating his analysis of Canada in a comparative context. At the base of his analysis is his penetration of struggles over whose views and/or interests prevail in the construction of work, such as his detailed account of conflicts over the implications of the debate about social spending versus tax cuts.”

The Economists: They were supposed to predict the Great Recession but didn’t. Some even say they caused it. But whatever your take on the dismal science and those who practice it, one thing is for certain: the economist’s time is now.

What’s strange about the cover is that I never even spoke to the journalist writing the story. I got sent a short list of questions, knocked off my response back in October, then a few weeks later was invited to a photo shoot, where I learned it was for the cover. I protested that they might not sell many issues with us five on the cover but so it goes …

For my own predictive abilities, I gave myself a B+ for seeing the recession coming, though not the nosedive and subsequent recovery of financial markets over the past year. If anything I was on this theme early on (going back to this post), but was more concerned about the bubble dynamics themselves than what later came out to be deep linkages to the financial sector via asset-backed commercial paper and subprime mortgages. I find it surprising that others were so oblivious to the dynamics in the housing sector. It was not so much my own bearishness, though – I was just reading a lot of economic analyses that seemed spot on in calling the recession.

My only regret in the responses I made was to give a nod to Paul Krugman for his great analyses of the financial crisis, health care and climate change. A pretty safe choice for a business magazine, I suppose, and I like to read Krugman’s weekly missives. But I wish I had cited Jame Galbraith instead. On this very theme, I read on the weekend a great article by Jamie where he pokes Krugman’s September 2009 article in the New York Times magazine, How did the economists get it so wrong?, not so much for his critique of mainstream academic economics, but for not speaking about any of the economists who did see the crisis coming. Galbraith goes on to highlight some of these thinkers.

http://www.imf.org/external/pubs/ft/spn/2009/spn0929.pdf

Overall employment changed so little because private-sector payrolls stabilized. While stability is welcome after the recent plunge in private-sector employment, it does not create job opportunities for the 1.6 million Canadians who are officially unemployed.

Notable monthly changes occurred in the two smaller categories of employment. Self-employment rose by 15,000 while the number of public-sector employees fell by 22,000 in December.

Both developments continue larger trends. Since October 2008, self-employment is up by 87,000 and the number of government workers is down by 23,000. Given widespread layoffs and much higher unemployment, one suspects that the ongoing surge in self-employment is mostly involuntary. Workers are struggling to generate income through self-employment since jobs are unavailable.

The drop in public-sector payrolls is striking given that the federal government and some provincial governments have increased expenditures to combat the recession. While the stimulus was largely focused on creating private-sector jobs (e.g. hiring construction workers to repair infrastructure), one might have expected more public programs to support somewhat more public-sector jobs. A possibility is that municipal governments and other public institutions are cutting costs by reducing staff.

With some signs of output beginning to recover but employment still flat, governments should be contemplating job-creation programs in preparing their upcoming budgets. One obvious starting point would be to stem the loss of jobs in the public sector itself.

UPDATE (January 9): Quoted by The Toronto Star

Apparently, Mr. Page has decided to release three big reports before the Budget gets tabled in March, despite the fact that Parliament has been prorogued. In a recent Globe article, Bill Curry explains:

The fact that Mr. Page is able to release such reports is due to the unique structure of his office. The Parliamentary Budget Office operates as a division of the Library of Parliament. Mr. Page has expressed concern about this arrangement, arguing that he should be an independent Officer of Parliament. There are currently eight such officers – including the Auditor-General, the Privacy Commissioner and the Conflict of Interest and Ethics Commissioner.

However, these officers must table their reports in Parliament before commenting on them. Since Parliament does not sit during a prorogation, they are effectively silenced. Mr. Page, on the other hand, can simply post his reports online.

Through a quirk in the rules, Mr. Page is able to put the notions of transparency and accountability in practice. Something he’s already done on a number of occasions, earning himself the reputation among journalists for having “a strong independent streak.”

While I don’t necessarily agree with Mr. Page’s analysis of the current deficit being structural in nature, one thing Mr. Page has certainly got right is that recent large tax cuts are coming to haunt us.

Mr. Page says that government has yet to come to grips with the revenue loss created by these [GST reduction from 7% to 5%] and other tax cuts, leaving a future gap that has so far not been addressed.

These and the effects of population aging on government revenues will be discussed in his next report, which is expected “as early as next week” according to the Globe article. I know I’m looking forward to reading it.

http://cansim2.statcan.gc.ca/cgi-win/cnsmcgi.pgm?Lang=E&AS_Abst=11F0019M2009321&ResultTemplate=/Stu-Etu/Anal_RchAbst

Specifically, I noted that keeping its annual profit of $1.4 billion would be worth more than the estimated sale price of $10 billion, which would reduce provincial debt charges by no more than $0.5 billion per year. PublicValues.ca and the Ontario Public Service Employees Union picked up my calculations.

The University of Western Ontario’s Jim Davies made the same argument using the same numbers in Wednesday’s Globe and Mail. Apparently, great minds really do think alike.

Thursday’s Globe included two letters objecting to the Weir-Davies analysis. Both made points that do not change the conclusion.

The first argued, “Ontario would continue to earn revenue from alcohol through taxation and licensing fees.” But Ontario’s tax on retail liquor sales (12% as opposed to the usual 8% provincial sales tax) is not part of the LCBO’s profit.

Similarly, liquor licence fees are paid to the Alcohol and Gaming Commission of Ontario rather than to the LCBO. These revenues, which the government would collect with or without privatization, have no effect on the costs or benefits of privatization.

The second letter noted that a privatized LCBO would pay corporate taxes on its profits. This point slightly increases the financial benefit of privatization, but leaves it far below the financial cost.

The Ontario government is cutting its corporate tax rate to 10%, so a private LCBO would pay $140 million annually in provincial corporate tax. Adding this amount to the potential reduction in debt charges produces a total of $0.6 billion, which is still below half of what the public LCBO contributes to provincial revenues.

Of course, the government could retain a portion of LCBO profits by continuing to buy alcohol in bulk and mark up the wholesale price, while privatizing only the retail outlets. But the more profit thus retained, the less private investors would be willing to pay for the stores.

There is still no reason to believe that public assets could be sold for amounts worth more than their ongoing contribution to public revenues.

The SEPH indicated that, from October 2008 through October 2009, average weekly earnings edged up 1.6% across all Canadian payrolls. Earnings fell in forestry, construction, manufacturing, and a few service industries.

But no one reported the most striking figure: earnings in “management of companies and enterprises” jumped 17%. It is difficult to tell exactly what this average means because it includes corporate executives, lower-ranking managers, and small proprietors who pay themselves modest salaries (either because their enterprises generate little income or because they avoid tax by collecting their income as dividends rather than as salary.)

I tried to at least insert this percentage into the public debate with the following letter printed in yesterday’s Globe and Mail:

The great escape

According to your On The Job sidebar (Factories Drive Rebound In Jobs Growth – Report on Business, Dec. 23), average weekly earnings rose by a meagre 1.6 per cent over the past year. The same Statistics Canada survey indicates the average weekly earnings of business managers increased by 17 per cent, more than 10 times as much. The people who caused the economic crisis appear to have escaped its consequences.

Erin Weir, economist, United Steelworkers, Toronto

Amount of Growth

Real GDP (in chained 2002 dollars) dropped from a peak of $1,241 billion in July 2008 to a trough of $1,183 billion in May 2009. It has now crawled back to $1,191 billion.

The Canadian economy remains in a deep hole. Annualized output is $8 billion above the trough, but $50 billion below the peak. It increased by less than $2 billion in October. At that rate, it would take two more years simply to restore pre-crisis output.

Throughout the crisis, Canada’s working age population has continued to grow and there have been at least some productivity-improving technical advances. So, simply returning to pre-crisis output will not create enough jobs for all of the Canadians who want them. While government stimulus has played a key role in pushing the economy back into growth, there is much more work to be done in creating jobs.

Type of Growth

The main drivers of Canadian growth in October were apparently cold weather and low interest rates. Statistics Canada notes that utilities were responsible for all of the growth in goods-producing industries, as a colder than usual winter in some regions boosted demand for natural gas and electricity.

Real-estate brokerages were the largest source of service-sector growth. The low-interest rates underpinning Canada’s surprisingly strong housing market can and should continue. However, there is presumably a limit to the amount of pent-up demand for housing. Furthermore, in seeking to prevent a housing bubble, the federal government may tighten its mortgage-insurance requirements.

Neither a cold winter nor a hot real-estate market is a sustainable source of economic growth. Canada has started to recover from the economic crisis, but the recovery’s foundations are tenuous.

UPDATE (December 24): Quoted by CanWest and The Toronto Star

Between September and October, the number of unemployed (seasonally adjusted) rose by 37,700 but the number of regular EI beneficaries (also seasonally adjusted) fell by 4,040.

Between June and October,  the number of unemployed fell by 4,500 but the numer of regular EI beneficiaries fell by 19,700.

Some people on EI are finding jobs, of course, but those becoming unemployed do not seem to be qualifying for EI in great numbers.

To make matters more ambiguous, the two main employment measures point in opposite directions. The Survey of Employment, Payrolls and Hours for October, also released this morning, indicates that non-farm payrolls increased by 34,500. Conversely, the Labour Force Survey indicated that employment decreased by 43,000 in October.

Therefore, it is extremely difficult to infer the extent to which the decline in EI recipients reflects modest improvement in the labour market or benefit exhaustion. At a minimum, the fact that 7,000 fewer EI claims were filed in October confirms that the pace of layoffs is slowing.

Benefit Coverage

Just over half (51%) of officially unemployed Canadians received EI benefits in October. But this fraction was below half in every province west of the Ottawa Valley.

Although the number of beneficiaries in Ontario increased in October, the total proportion of unemployed Ontarians receiving EI was only 41%. Ontario continues to have the lowest benefit coverage of any province despite having one of the country’s highest unemployment rates.

Alberta also bucked the national trend, experiencing almost as large an increase as Ontario in EI beneficiaries. The number of new EI claims filed in Alberta also rose.

Employment Insurance Coverage, October 2009 (seasonally-adjusted figures)

UPDATE (December 23): Quoted in The Financial Post, other CanWest newspapers, The Hamilton Spectator and Globe and Mail Update

It is disappointing that the meeting of finance ministers in Whitehorse seems to have reached no agreement that the private part of our pension system is fundamentally flawed. This is perhaps due  to Mintz’s overall conclusion that “(o)verall, the Canadian retirement income system is performing well, providing Canadians with an adequate standard of living upon retirement. ” This conclusion is partly based on revising downwards traditional judgements of how high a percentage of after tax income must be maintained in retirement to maintain consumption standards, and on some fairly optimistic assumptions on savings rates and rates of  return on investment. In fairness, Mintz does go on to say  as part of his overall conclusion that “(t)he evidence does strongly suggest that some Canadians do not have sufficient replacement income.”

A  key problem with Mintz’s framing of the issue is that he does not really focus on the retirement prospects of today’s younger workers,  and focuses his attention mainly on the well-being of the current elderly and on overall savings rates based on a (as he concedes, inadequate) snapshot of recent data on savings.  Yet today’s retirees worked in a very different context, one where employer sponsored pension plans covered significantly more workers, and  where investment returns were generally quite high. Critics of the current pension system generally agree with Mintz that public pensions have worked quite well in terms of providing a bare bones, basic income for lower-paid workers,  and that  Canada compares quite well to other countries in terms of income replacement rates of today’s elderly. The key problem is that future retirees are unlikely to fare anywhere near as well.  It seems far from likely that RRSP savings will rise by enough, on a sustained basis, to replace income from an employer pension system in decline, or can achieve similar rates of return to those of large employer plans.

The theme of a significantly weakening third pillar under changing economic and demographic circumstances is developed more fully in Bob Baldwin’s report for the Ontario government. http://www.fin.gov.on.ca/en/consultations/pension/dec09report.html#091218 This is also a pretty cautious document,  dwelling as much on the strengths of the current system as on its failures, but it does advance a case for a discussion of fundamental reforms.

“Economic, labour market and demographic trends may make it harder for third pillar (ie employer pension plans and RRSPs - my addition) pension institutions to deliver adequate retirement incomes in the future … the decline in EPP (employer pension plan) coverage and the shift from DB to DC (defined benefit to defined contribution) are not prompting offsetting forms of wealth accumulation for retirement. This is a very important issue that needs further study……The status quo is an option. However, it is an option that may leave a significant minority of people with moderate to high earnings facing a decline in their standard of living in retirement, and force many people to rely on sub-optimal pension and retirement savings institutions.”

Mintz is not very critical of the private pension industry in Canada, and fails to strongly conclude - unlike the recent pensions reports from Alberta- BC, Nova Scotia and Ontario - that individual savers fare very badly and need much larger, lower cost collective investment vehicles.  He professes himself to be “puzzled” that advisers and fund managers involve clients in high cost active investment strategies, as opposed to lower cost, passive strategies which yield equal rates of return.  This seems a touch naive.  Certainly there is not much in his report on the high returns to the financial sector which flow from managing third pillar pension plans and individual retirement savings.

One of  Mintz’s arguments - valid so far as it goes - is that private retirement savings are only one source of economic well-being in retirement. One part of his report shows that “retirees” without an employer  pension have incomes in the same range as those with pensions, but this is in significant part  because they are much more likely to have employment income. There is no reflection that working might be a rather unpalatable choice for many older workers without a decent pension. The fact that those without pension plans can draw on wealth by selling a house also rather misses the point.

I was looking forward to a post Whitehorse debate between proponents of a bigger, better Canada Pension Plan and advocates of  pooled individual retirement accounts like Keith Ambachtscheer. But Mintz  leaves the status quo of  “you’re on your own” individual retirement accounts very much in play.

By way of contrast, the Globe carried an excellent  full page essay on Saturday on the case for an expanded CPP by  Jon Kesselman,  a very mainstream UBC economist. http://www.theglobeandmail.com/news/opinions/who-will-pay-to-end-the-looming-pension-crisis/article1406178/

The finance ministers did at least promise consultations, and the pension debate will surely continue.

Till the end of his life he was, above all, a theorist, and, being no ideologue, prepared to go where theory took him. In 2004, at the age of 89, he published a paper in international trade theory demonstrating mathematically that “technical Chinese progress in goods that America previously had competitive advantage in can, ceteris paribus, lower permanently per capita U.S. real income.” Economists for whom free trade was a matter of faith were unable to deny Samuelson’s math, and had to resort to insisting that he had stumbled upon a special case with slight real world relevance, but when a theorist appeals to fact he has already lost the argument.

It is, of course, possible, that what Samuelson had done was find a flaw in trade theory that had considerable real world relevance. After all, it was the same Samuelson who earlier in his career had laid out the mathematics of the factor-price equalization theorem. And was it not possible that equalization could happen by one’s country’s wage falling as the other country’s rose?

So talented was Samuelson that, as we know, he also wrote the first mass circulation economics textbook in introductory economics.  First edition 1948 to 19th edition today. In between, I was privileged to co-author with Samuelson the Instructor’s Manual for the 4th edition in 1958. It’s been downhill for me ever since. He was a wonderful person to work with. I still treasure a memo he sent me signed “Paul.”

Was Samuelson a “progressive” who deserves to be celebrated here? Absolutely. He was a Keynesian when Keynes was dismissed as  a dangerous liberal by the American establishment When stagflation made Keynesian no longer good enough, Samuelson called himself a post-Keynesian. He never bought into monetarism or rational expectations nor supply-side economics. He deplored the increasing maldistribution of income and wealth.

To the economist who could justify anything in the name of efficiency, Samuelson had a simple answer: “My belief is that any good cause is worse some inefficiency.” If all mainstream economists would admit to that, the world would be a better place

The following paragraphs note the extreme difficulty in getting anything approaching fair value for the sale of huge, complex assets like electric power systems and the folly of trying to balance the budget with such one-time sales:

Desperate sellers rarely get the prices they hope for. Especially when the pool of buyers is limited by the sheer size of the assets, and the likely reluctance of the government to sell to customers outside Ontario’s borders. It’s difficult to imagine Ontario peddling OPG to Hydro-Quebec, as New Brunswick recently did with New Brunswick Power.

So the pot of gold may not be as large or glittering as hoped for. And the impact on the bottom line, while significant, may not be long-lasting. Even if the government was able to offset one year of its forecast deficit, that would do nothing to reduce future shortfalls, which are projected - some would say optimistically - through to 2015. Having sold off its best assets, Ontario would quickly find itself back in the red, having done nothing to address the underlying problem.

This process was overshadowed by the HST hearings, which began on the same day. However, the transcripts are worth a look. Below is a lightly edited version of my testimony.

By tightly controlling the timing, the government had the upper hand in arranging appearances by any supporters of the Ontario Labour Mobility Act. So, the fact that no one testified in its favour is telling.

Eight labour and professional organizations indicated that this legislation is not needed and risks undermining the province’s occupational-certification standards. The College of Physicians and Surgeons even suggested that it would “put patients at risk and compromise their safety.”

Only one organization, the Certified General Accountants (CGAs), supported the bill’s general thrust. Not surprisingly, they oppose Ontario’s rule that only Chartered Accountants may practice public accounting.

Since other provinces allow CGAs to do this work, they characterize Ontario’s rule as a barrier to labour mobility. However, they do not like the proposed Act because it provides an exception for public accounting, allowing the requirement for Chartered Accountant to continue. This controversy reflects the fundamental problem with a one-size-fits-all approach to labour mobility.

The government must decide which types of accountants may perform which types of accounting. This decision should be based not on some omnibus “Labour Mobility Code,” but on a detailed assessment of what training and which qualifications are needed for various sorts of accounting work. The government understandably exempted public accounting, and a variety of other fields, from the bill.

If the goal were to solve real problems, government officials would be working out specific solutions on a case-by-case basis. However, the actual motive is the political imperative created by Premiers agreeing to do something dramatic about alleged (but mostly unidentified) “barriers” to labour mobility.

So, one group of officials drafted an all-encompassing Labour Mobility Code. My guess is that other officials - those actually responsible for particular occupational regulations - then scrambled to add exceptions for areas in which this sweeping approach would not work.

The best possible outcome from such a process is harmless legislation that does very little. A worse possibility is legislation that forces Ontario to accept the lower standards maintained by some other provinces for certain regulated occupations.

My testimony:

The United Steelworkers union is interested in the proposed Ontario Labour Mobility Act primarily because we represent some workers in the provincially regulated trades. Of course, all of our members also rely on services provided by provincially regulated professions.

I greatly appreciate the opportunity to appear before this committee, but I also want to make an appeal for this committee to provide opportunities for more people to appear. I found out about these hearings toward the end of the day yesterday. I understand that today is the only day of hearings on this important legislation.

By comparison, I had participated in Saskatchewan’s hearings in 2007 about whether or not to join the Trade, Investment and Labour Mobility Agreement. In that case, we knew weeks in advance that the hearings were coming and the hearings themselves lasted for two weeks. I believe that it would be beneficial for Ontarians to have more extensive hearings on Bill 175.

The United Steelworkers union strongly supports labour mobility between Canadian provinces. Indeed, a very high degree of labour mobility already exists between provinces and we would be happy to support efforts to enhance that mobility by developing higher occupational standards acceptable to even more Canadian jurisdictions. However, Bill 175 is not needed to achieve labour mobility and risks undermining Ontario’s occupational certification standards.

The government has not explained why this legislation is required. To demonstrate that labour mobility is a significant problem for Ontario, one would have to do three things. First, one would need to demonstrate that there are shortages of workers in provincially regulated trades and professions. Second, one would need to identify barriers to labour mobility within those trades and professions. Third, one would need to show that the labour shortages are caused by these barriers.

There is very little evidence of labour shortages in provincially regulated occupations. Certainly, there is no overall shortage of labour in Ontario. The province currently has 669,000 officially unemployed workers, the largest number of unemployed workers ever in the history of Ontario.

I have never seen a list of alleged barriers to labour mobility within regulated occupations. In fact, we already have many proactive programs designed to facilitate labour mobility. Of course, we have the Red Seal program in the skilled trades.

Quebec is not part of the Red Seal program, but Ontario already has a separate agreement with Quebec for the construction trades. Most regulated professions outside of the skilled trades are already subject to mutual recognition agreements, through which professional associations have negotiated compatible standards between different provinces.

There are very few, if any, remaining barriers to labour mobility and there is no indication of any such barriers causing labour shortages. Yet the proposed Ontario Labour Mobility Act is a sweeping, omnibus piece of legislation that would cover all provincially regulated occupations and apply financial penalties of up to $5 million.

Bill 175 is like trying to kill a fly with a sledgehammer. I would encourage the provincial government to put the sledgehammer down, draw up a list of the barriers to labour mobility that are believed to exist, and negotiate - or if necessary legislate - specific solutions to those specific problems.

The proposed Ontario Labour Mobility Act is not only unnecessary, but also threatens Ontario’s existing occupational certification standards. The basic premise of the bill is that Ontario should automatically recognize credentials from other provinces. This approach is a problem where other provinces choose to train workers to lower standards or choose to require fewer qualifications for professional certification.

This system of automatic recognition fosters a race to the bottom. Essentially, the lowest standard in any province automatically becomes the minimum standard for every province.

There is a further problem associated with giving legal force to the fines prescribed by the Agreement on Internal Trade for labour-mobility violations. Bill 175 also allows the provincial government to pass those fines along to professional associations, municipalities, and other regulators. The possibility of such fines will have a chilling effect on regulators in Ontario.

No official wants to be the person who made a decision that leads to a fine of up to $5 million. Under the proposed regime, regulators will err on the side of looser rules, and looser enforcement of those rules, in order to steer clear of these fines. In addition to Ontario potentially having to accept specific lower standards enacted by other provinces, there will be a more general erosion of Ontario’s standards.

In conclusion, Bill 175 exposes Ontario to some risks without delivering any apparent reward. A much better approach would be to address specific problems that may exist on a case-by-case basis and to coordinate with other governments in developing high, universally acceptable standards for more occupations.

Thank you.

Today’s Globe comment page features three sassy letters on the contemplated privatization. But the editorial strikes a seemingly pragmatic tone, arguing that the Ontario government should sell “if the price is right.”

However, the numbers in yesterday’s front-page story suggest that the price is not right. The Globe reported that the Liquor Control Board of Ontario (LCBO) could be sold for $10 billion.

This past summer, the Ontario government was writing 30-year bonds at an interest rate of 4.6%. (Of course, shorter-term government bonds entail even lower interest rates.)

So, reducing Ontario’s current borrowing by $10 billion would reduce future interest charges by $0.5 billion per year (at most). By comparison, The Globe reported that the LCBO’s profit was $1.4 billion last year.

Why should the government give up $3 of annual revenue to save $1 of annual interest costs?

Given the changed base of comparison, it is not surprising that the headline inflation rate has returned to solidly positive territory. However, it is worth noting that the overall consumer price level was still lower last month than it had been in September 2008, before the economic crisis. (Where 2002 = 100, September 2008 = 115.7 and November 2009 = 115.2)

The most striking development in today’s release is the drop in core inflation - which excludes gasoline and other volatile items - from 1.8% in October to 1.5% in November. So, apart from the rebound in commodity prices, there is no inflationary trend in the Canadian economy.

The implication is that the Bank of Canada can afford to maintain, or even increase, monetary stimulus without overshooting its 2% inflation target. Similarly, governments can and should press ahead with fiscal stimulus without worrying about stoking excessive inflation.

Recently, currency traders bid up the Canadian dollar partly based on incorrect speculation that the Bank of Canada would follow Australia’s lead in raising interest rates. But this recent lesson has not stopped some analysts from drawing an analogy between Canada and Norway, another resource exporter than hiked interest rates yesterday. Today’s reported drop in the Bank of Canada’s core inflation rate should pour cold water on any speculation about it raising interest rates before mid-2010.

UPDATE (Dec. 18): Quoted in The Toronto Star

Last week, Jack Mintz critiqued this study for positing a fixed amount of capital investment in Canada. Under this highly dubious assumption, climate policy only shifts capital around between industries and provinces but cannot affect total investment.

On Monday, Stephen Gordon breathlessly reported Mintz’s finding that the TD-Pembina-Suzuki study assumed fixed capital. Yesterday, Colby Cosh at Macleans highlighted Gordon’s post as revealing this study to be a “climate-change hoax.”

But as a couple of astute commentators on the Macleans blog pointed out, Relentlessly Progressive Economics had already noted the study’s flawed assumption about capital. On November 5, a week after the study’s release and a month before Mintz’s op-ed, Andrew Jackson wrote, “Lower investment in the oil and gas sector is magically assumed to be balanced off by new investment elsewhere, since national investment always equals national savings.”

The same day, I wrote the following comment on Andrew’s post:

I did indeed wince at the assumption that investment lost in carbon-intensive industries will automatically be offset by precisely equivalent investment gains in other industries.

By positing a fixed amount of investment in Canada regardless of climate policy, the study ignores the threat that carbon-intensive industries will relocate to other countries that choose not to regulate emissions.

We should be discussing policy responses to carbon leakage, rather than assuming away this problem.

In fact, the original proposal was more or less revenue neutral. Removing sales tax from business inputs and cutting personal income taxes would have offset the additional sales tax on consumer purchases.

But the Ontario government has backed off extending the provincial sales tax to newspapers, prepared foods and beverages under $4, and the first $400,000 of new-home purchases. As the tax cuts on business inputs and personal incomes proceed, “harmonization” will appreciably reduce provincial revenues. And this reduction is in addition to deep provincial corporate tax cuts.

I made this point a week ago, when I appeared before the Ontario Legislature’s Standing Committee on Finance and Economic Affairs. The transcript is now available. A lightly edited version of my testimony follows.

I would like to make three points in my testimony. First, I will address how Bill 218 will affect provincial revenues. Second, I will examine how the business tax cuts in the bill will or will not affect the provincial economy. Third, I will discuss how sales tax harmonization will affect pension and benefit plans in Ontario.

The most controversial aspect of sales tax harmonization has been the application of provincial sales tax to a wider range of consumer goods and services. There is a legitimate concern that consumption taxes are regressive. But I think that an even more important concern is how the proceeds will be used. If additional revenue from consumption taxes were invested in public programs, the progressive effect of those programs could offset the regressive effect of the consumption tax.

In fact, as I have said previously in front of this committee, I would support higher provincial taxes to fund improved public services. However, it is important to note that Bill 218 does not actually provide more revenue. The 2009 provincial budget indicated that the sales tax changes would generate an additional $2.2 billion annually. However, the personal income tax reductions and credits to compensate for those sales tax changes will cost $2.3 billion annually. Recent concessions on prepared food and real estate will cost the provincial government a further $0.6 billion annually.

So, the whole harmonization process will actually reduce provincial revenues available for public purposes by approximately $0.7 billion per year. On top of that, Bill 218 enacts corporate tax cuts that will cost a further $2.3 billion per year when fully implemented in 2014-15.

This budget legislation amounts to a transfer of $3 billion from the public purse - and billions more from Ontario consumers - to the corporate sector. This huge gift to Bay Street is justified by the claim that it will increase investment and employment in the province.

In particular, Jack Mintz has garnered a great deal of attention by claiming that Bill 218 will create 591,000 new jobs. To put that number in perspective, employment in Ontario has declined by 179,000 since October of 2008. Mintz is claiming that the tax breaks in Budget 2009 will create more than three times as many jobs as were eliminated by the worst economic crisis since the Great Depression. I am skeptical of that claim.

Mintz arrives at the 591,000 figure by combining a large projected increase in capital investment with two unsupported assumptions. First, he posits a fixed ratio of labour to capital, so that employment income must automatically increase by the same proportion as capital investment. Second, he assumes fixed wage rates, so that the entire increase in employment income must represent additional jobs. Even if one were inclined to accept the projected increase in capital investment, one should not believe the projection of 591,000 new jobs.

Putting that figure aside, there are specific reasons to doubt the projected increase in investment. On the issue of corporate tax cuts, Premier McGuinty was extremely articulate and effective in refuting federal demands for provincial corporate tax cuts until Budget 2009. I will not repeat the Premier’s excellent arguments against corporate tax cuts, but I will add one more. The paper circulated to this committee explains that much of Ontario’s corporate tax cut will flow not to enterprises operating in the province, but to the U.S. federal treasury.

Removing the sales tax from business inputs is also unlikely to promote additional investment in Ontario. The existing provincial sales tax already exempts most of the machinery and equipment that comprises major capital investments. Bill 218 will serve instead to remove provincial sales tax from building materials, office supplies and other intermediate inputs that are far less relevant to business investment decisions.

A better alternative to the across-the-board business tax cuts in this bill would be more targeted tax measures. For example, it would cost a few hundred million dollars to remove the remaining provincial sales tax that still applies to some machinery and equipment. So, simply removing the tax from those capital goods would be no more expensive than the proposed harmonization scheme.

Another targeted option would be an investment tax credit. Instead of providing no-strings-attached corporate tax cuts and removing sales tax from all business inputs, the provincial government would offer tax breaks proportionate to the amount a business actually invests in Ontario.

I will conclude by addressing how Bill 218 would affect pension and benefit plans in Ontario. Most of the administrative, actuarial and other services used by pension plans are not currently subject to provincial sales tax. However, they are subject to the federal Goods and Services Tax (GST).

Pension plans operated within a business receive input tax credits for GST paid on those services. But multi-employer pension plans, and benefit trusts separate from the business, must pay the 5% GST. Bill 218 will increase that cost to 13%, which is a deduction from the funds available to provide pension and other benefits to Ontario workers.

There are essentially two possible solutions. One would be to not enact Bill 218. The other would be to amend Bill 218 to make input tax credits available to multi-employer pension plans and benefit trusts, giving these entities the same treatment as single-employer pension plans.

Thank you.

The official line from the Canadian government, the IMF and the OECD is that macro-economic stimulus should be maintained well into next year, awaiting convincing evidence of a sustained revival of private sector demand.  But the application of fiscal discipline and a return to more normal interest rates are clearly on the medium-term agenda, and there is no shortage of voices on the right calling for a rapid re-balancing of  government finances to curb the rise of  government debt to GDP ratios. Alarm at the potential impact of loose monetary policy on inflation is understandably less widespread given the reality of  a large output gap and very high unemployment, but there are growing and serious concerns about the emergence of new asset bubbles.

One of the key issues that must be addressed by governments is the relative emphasis to be placed on monetary and fiscal policy. The dominant view would seem to be that fiscal tightening should come first, and that monetary ease can and should persist so long as national economies are operating well below capacity.  In Canada, then, interest rates might rise only a bit, and at a slow pace, from ultra low levels as fiscal stimulus is withdrawn.  This would echo the experience of the 1990s recovery when the macro-economic impact of deep spending cuts was offset to a significant degree by relatively low interest rates and a low Canadian dollar.

One problem with this view is that it will be very difficult, if not impossible, for monetary policy to offset contractionary fiscal policy.  Interest rates are already as low as they can go.  To be sure,  “quantitative easing” could and should be implemented today to create more expansionary overall monetary conditions by bringing down the over-valued Canadian dollar. But this is unlikely to happen unless and until the Bank of Canada is convinced that we are going to slide back into recession or face actual deflation of prices. In short, assuming we get back onto a low growth trajectory, the stage seems to be set for some combination of government spending cuts and some modest monetary tightening.

That is a pretty dismal prospect. It translates into continued very high unemployment and substantial slack in the economy.  Operating below capacity means low levels of public and private investment which in turn lowers the potential for future growth.   In human terms,  an economy bumping along bottom means no jobs for young people, rising inequality and rising poverty and social exclusion among the victims of the recession.

Another problem with the dominant view is that there are major problems with an indefinite continuation of  loose monetary policy. In Canada, more than elsewhere, ultra low interest rates have had a major impact, sustaining domestic demand in such a way as to largely offset the collapse of exports and of business investment.  Unfortunately,  in the context of rapid US dollar depreciation, all of the impact of low interest rates has been on debt financed domestic consumption.  It is pretty clear that we risk, if we do not already have, a house price bubble, and households are going deeper and deeper into debt.  Low interest rates have helped maintain demand, but hardly in a costless or sustainable way.

It would also seem to be the case that ultra low interest rates and major injections of liquidity into the banking system have fueled a new financial asset price bubble. Led by major institutional investors, the shift back into equities and some other assets has pretty evidently got well ahead of any actual or feasible recovery in the real economy.  From one perspective it is a good thing that household wealth and pension funds have recovered some of the losses of the Great Recession, but we are probably creating the conditions for future financial problems. It is somewhat ironic that one of the supposed lessons of  the Great Recession was the need for greater macro prudential oversight, but that the authorities are (not without reason) desperately afraid to derail a financial sector recovery which is pulling the big global and US banks back from the brink of collapse.

The key problem with stimulating the economy with low interest rates - virtually the only tool in the hands of central bankers - is that you don’t necessarily get the results you want.  In theory, low borrowing costs should be setting the stage for a revival of business investment, which would create jobs and increase our economic potential. But, in Canada at least and more widely, the stimulus effect is all on the household sector while business remains hunkered down.

One way out of this problem would be to control the credit process more closely so that loose monetary policy does not inflate new bubbles, We could and probably should, for example, be increasing required down payments for housing, and limiting highly leveraged financial investments. But not too many people are talking about that.

These considerations lead me to think that the dominant view is seriously at odds with the macro setting we need - continued expansionary fiscal policy, and some modest tightening of  monetary policy as and when we get a real recovery.

Consider the advantages of emphasising fiscal stumulus.  First, we can target resources to those who need them the most, the long-term unemployed and depressed communities, rather than those who need them the least, not least investment bankers. Second, fiscal stimulus can and should have a major investment component, setting the stage for higher potential growth.  My favourite example is investment in transit and passenger rail which can have big job impacts, significantly cut carbon emissions, and generate a large social rate of return to individuals and businesses in terms of reduced travel time and congestion.  But we can add the large returns from investment in areas like post secondary education and research, training, and go on to consider targetted support for desirable new business investments  which create jobs and restructure our economy in positive ways.  And even if interest rates rise a little, these public investments are quite capable of generating returns greatly in excess of the cost of borrowing.

By way of conclusion,  the dismal prospect of a very slow and uncertain recovery means we should continue fiscal stimulus, while targetting it much more effectively to the twin goals of raising our economic potential as we bring down unemployment.  Monetary policy can and should assist fiscal expansion, but there are real dangers to thinking we can rely on it to engineer a meaningful recovery.

http://www.radiotimes.com/content/features/carol-ann-duffy-the-twelve-days-of-christmas/

ON THE FIRST DAY OF CHRISTMAS,
a buzzard on a branch.

In Afghanistan,
no partridge, pear tree;
but my true love sent to me
a card from home.
I sat alone,
crouched in yellow dust,
and traced the grins of my kids
with my thumb.
Somewhere down the line,
for another father, husband,
brother, son, a bullet
with his name on.

2
TWO TURTLE DOVES,
that Shakespeare loved –
turr turr, turr turr –
endangered now
by herbicide,
the chopping down
of where they hide –
turr turr, turr turr –
hawthorn thickets,
hedgerows, woodland.
Summer’s music
fainter, farther…
the spreading drought
of the Sahara.

3
THREE FRENCH HENS –
un, deux, trois –
do not know
that French they are.

Three Welsh lambs –
un, dau, tri –
do not know
that Welsh they baa.

Newborn babies –
one, two, three –
only know
you human be.

Only know
you human be.

4
THE GRENADA DOVE IS CALLING.
The Condor calls from the USA.
The Wood Stork calls from its wetlands.
The Albatross calls from the sea,
on the fourth day of Christmas.

The Yellow-eared Parrot is calling.
The Kakapo calls from NZ.
The Blue-throated Macaw is calling.
The Little Tern calls from Japan, calls
my true love sent to me.

The Corncrake is calling; the Osprey.
The Baikal Teal calls from Korea.
The Cuckoo is calling from England,
four calling birds.

5
THE FIRST GOLD RING WAS GOLD INDEED –
bankers’ profits fired in greed.

The second ring outshone the sun,
fuelled by carbon, doused by none.

Ring three was black gold, O for oil –
a serpent swallowing its tail.

The fourth ring was Celebrity;
Fool’s Gold, winking on TV.

Ring five, religion’s halo, slipped –
a blind for eyes or gag for lips.

With these five gold rings they you wed,
then slip them off when you are dead.

With these five go-o-o-old rings.

6
I BOUGHT A MAGIC GOOSE FROM A JOLLY FARMER.
This goose laid Barack Obama.

I bought a magic goose from a friendly fellow.
This goose laid Fabio Capello.

I bought a magic goose from a maiden (comely).
This goose laid Joanna Lumley.

I bought a magic goose from a busker (poor).
This goose laid Anish Kapoor.

I bought a magic goose from a bargain bin, it
was the goose laid Alan Bennett.

I bought a poisoned goose from a crook (sick, whiffing).
This foul goose laid Nick Griffin.

7
THE SWAN AT COCKERMOUTH –
of a broken heart, one half.

The Mersey Swans, flying
for Hillsborough, wings of justice.

Two, married and mute on the Thames,
watching The Wave.

A Swan for Adrian Mitchell
and a Swan for UA Fanthorpe,
swansongs for poetry.

The Queen’s birds, paired
for life, beauty and truth.

8
ONE MILKED MONEY TO MEND HER MOAT.
Two milked voters to float her boat.
Three milked Parliament to flip her flat.
Four milked Government to snip her cat.
Five milked the dead for close-up tears.
Six milked the tax-payer for years and
years and years…
Seven milked the system to Botox
her brow.
Eight milked herself – the selfish cow.

9
BUT THE DEAD SOLDIER’S LADY DOES NOT DANCE.
But the lady in the Detention Centre
does not dance.
But the honour killing lady does not dance.
But the drowned policeman’s lady
does not dance.
But the lady in the filthy hospital ward
does not dance.
But the lady in Wootton Bassett does not dance.
But the gangmaster’s lady does not dance.
But the lady with the pit bull terrier
does not dance.
But another dead soldier’s lady
does not dance.

10
LORDS DON’T LEAP.
They sleep.

11
WE PAID THE BLUDDY PIPER
fir ‘Royal Bank;
twa pipers each
fir Fred and Phil,
fir Finlay, Fraser, Frank.
Too big tae fail!
The wee dog laughed!
The dish ran awa’ wi’ the spoon…
We paid the bluddy pipers,
but we dinnae call the tune.

12
DID THEY HEAR THE DRUMS IN COPENHAGEN,
banging their warning?
On the twelfth day in Copenhagen
was global warming stopped in its tracks
by Brown and Barack and Hu Jintao,
by Meles Zenawi and Al Sabban,
by Yvo de Boer and Hedegaard?
Did they strike a match
or strike a bargain,
the politicos in Copenhagen?
Did they twiddle their thumbs?
Or hear the drums
and hear the drums
and hear the drums?

**

The Twelve Days of Christmas 2009 by Carol Ann Duffy appears in the bumper Christmas issue of Radio Times - find out more and order your copy online.

Before the recession, more than one in four (27.9%) of claimants exhausted their benefits (29.9% of women and 26.5% of men) and more than one in three (34.3%) older workers exhausted their benefits. Currently, claimants are eligible for between 19 weeks and 50 weeks of benefits depending upon how many hours of work they put in in the 52-week qualifying period before a claim and the regional rate of unemployment. (This includes the temporary five weeks of benefits added to the system in all regions in the 2009 Budget.) In an “average” region with an unemployment rate of 8% to 9% ― the same as the average national rate ― eligibility ranges from 23 to 47 weeks depending upon the number of hours worked in the previous year. More than 1,820 hours or essentially a history of working in a full-time, permanent job are required to get the maximum 47 weeks of benefits. (The 50-week maximum only applies in regions with an unemployment rate above 12%.)

It can be estimated that a new EI claimant today will, on average, qualify for about 38 weeks or nine months of benefits. That is the average of 31 weeks before the recession (2006-07), plus the extra five weeks added in the last Budget, plus the extra two weeks generated on average by a two-percentage-point rise in the national unemployment rate.

We can expect that the total number of new regular claims in 2009 will hit about two million. If the exhaustion rate were to remain the same as in 2006-07, we could eventually see some 500,000-plus exhausted claims in late 2009 and into 2010. It is open to question if the exhaustion rate will remain the same as before the recession. On the one hand, a higher unemployment rate automatically triggers somewhat longer benefit periods, and five weeks have been temporarily added for two years. About 400,000 workers were expected by HRSDC to qualify for the extra five weeks in 2009-10. On the other hand, it will be far harder than in 2006-07 for those on claim to find a new job before their eligibility period comes to an end.

At this point in the recession, jobs are still very hard to find. Between the start of the recession and September 2009, the average duration of a spell of unemployment has risen from 13.6 to 17.0 weeks, and more than one in five unemployed workers in September had been out of work for more than six months, clearly placing those on EI at risk of running out in the very near future if, in fact, they have not already exhausted.

While no direct data are available on the number of exhaustees, the number of EI regular beneficiaries appears to have peaked by the summer of 2009, even though the number of unemployed workers has continued to rise.  And the gap between the number of unemployed workers and the number of regular EI beneficiaries has greatly increased in communities which were hit hard in the early stages of the recession, such as Windsor.

In response to the reality of many unemployed workers exhausting their benefits, the Conservative government legislated in November to further extend EI benefits by five to 20 extra weeks of benefits on a temporary basis, but only for a small subgroup of claimants. The government estimates that 190,000 workers, so-called “long tenure” workers, will qualify over the short life of the program at a cost of just under $1 billion. The payments will be made over the final months of 2009, 2010, and until the fall of 2011. A “guesstimate” is that only about one in five potential exhaustees will qualify for this additional extension. (If there are three million claims in 2009 and the first half of 2010, and the exhaustion rate is 30%, close to one million claims will be exhausted.)

To be eligible for the second round of extended benefits, a worker must have initiated a claim after January 4, 2009, thus excluding the many workers who lost their jobs in late 2008. Eligibility for the extended benefit will be rapidly phased out between June and September of 2010. To qualify, a worker must also have been paying into the system (defined as paying at least 30% of the maximum premium) for at least seven of the past ten years. The maximum additional 20 weeks goes to those who have been paying in even longer, for at least 12 of the past 15 years. Finally, to qualify, a worker must have claimed no more than 35 weeks of regular EI benefits over the last five years. This temporarily re-introduces an element of experience-rating into the EI system.

The target group was, very explicitly, older workers who have made very limited use of the EI system in the past ― meaning younger workers, many women, workers in high unemployment regions, workers in seasonal industries, and many industrial workers will not qualify. The 35-week cutoff will exclude many industrial workers who have been temporarily laid off to reduce inventories, to allow for retooling of plants and other normal workforce fluctuations in operations. It will also exclude many claimants in provinces which experienced relatively high unemployment rates over the past five years ― notably Atlantic Canada, Quebec, and rural and northern regions in other provinces ― as well as the many workers impacted by the manufacturing and forest industry jobs crisis which began well before the Great Recession.

The 35-week cutoff makes an invidious and unsupported distinction between the “deserving” and the “undeserving” unemployed based on previous use of the system, ignoring the fact that any EI claim has to be based on an employer layoff as opposed to any choice exercised by a worker. (Workers who quit or are fired from a job are ineligible under the rules which have been in place for the past decade.)

The CLC has long called for an EI program with a single national entrance requirement of 360 hours, and eligibility for up to 50 weeks of benefits based on 60% of the best 12 weeks of earnings in the qualifying period. As detailed in a recent CCPA report by Lars Osberg, “Canada’s Declining Social Safety Net: The Case for EI Reform,” our EI program is one of the least generous in the high income countries and excludes many unemployed workers from benefits completely. The “stress testing” of the current system has shown that current entrance requirements continue to exclude many workers, and average benefits remain very low.

A major challenge facing Canadians is the prospect of very large numbers of unemployed workers exhausting their EI benefits today and over the coming months. Many will, after using up their financial assets, be forced to turn to provincial social assistance programs. In the United States, the federal government has ― as is usually the case in periods of very high unemployment ― temporarily extended benefits by up to 33 weeks in states with very high unemployment rates.

Extending benefits would result in higher EI benefit costs until such time as high unemployment rates begin to decline. However, these benefits are a highly effective form of temporary economic stimulus, flowing directly to the principal victims of the recession and to especially hard-hit communities. The huge surplus accumulated in the EI Account before the recession can and should be drawn upon if it is needed.

Targets and timelines on offer in Copenhagen have rightly been criticized as too lax, and say little about the path that will be taken to get to those targets. As a reality check, we need to think about how large is the world’s carbon budget — the total stock of emissions that can be emitted between now and 2050 by everyone, consistent with keeping temperature increase under 2 degrees Celsius — and then how to divvy up those slices.

The World Wildlife Federation put out some updated calculations that put the world’s carbon budget (between now and 2050) at just over 1 trillion tonnes of CO2 equivalent. They estimate global emissions of 46 billion tonnes in 2010, a level at which the total budget would be exhausted in just over 23 years. The WWF then figures out a scenario for salvation: emissions must fall to 7 billion tonnes in 2050, a drop of 80% from 1990 levels; and 1990 levels would be re-achieved by 2020.

Now for the hard part: over the next decade, industrialized countries would do most of the heavy lifting, with a 40% reduction relative to 1990 levels by 2020 (total industrial emissions in 2010 are a hair under 1990 levels so the percentage drop from 2010 is about the same). Developing countries would have their total emissions peak by 2015, and by 2020 would be slightly under 2010 levels (but this is 97% above 1990 levels). By 2050, the split is for a 95% reduction in the industrialized countries relative to 1990; 47% below for developing countries.

These findings approximate a CCPA paper from last year by Colin Campbell and Cliff Stainsby that used the global carbon budget concept to estimate what BC’s fair share of emissions would be (also keeping global temperature increase to 2 degrees Celsius, based on modeling by Andrew Weaver at the University of Victoria). The standard of fairness was equal per capita emissions, and they found that it was essentially impossible to divvy up the full 40+ year carbon budget on an equal per capita basis, as it would require draconian cuts immediately.

As an alternative, the authors figured that BC (and other rich jurisdictions) could converge towards an annual flow of emissions by 2050 that would represent an equal per capita amount in that year and thereafter. This is essentially the same as proposed by the WWF. The answer from this exercise was that BC needed a 94% reduction in emissions by 2050, although in private conversations the authors argue that number is likely higher due to the most recent dismal science on climate change. And BC is already on the low end of per capita emissions for Canadian provinces; the percentage reduction for Alberta and Saskatchewan, our biggest polluting provinces, will of course be higher.

So, think new industrial revolution over the next decades if we are to pull this off. And yet, the political negotiators from the rich countries at Copenhagen do not seem to get it, and if anything assume that we can go slow, and even hive off a big chunk of our emission reductions to developing countries through offset projects. I would agree that we need developing countries to commit to targets, but the political impetus behind this proposal is so that it creates a market for offset projects, of which there are not enough on tap to meet demand from the industrialized countries.

Bottom line: any meaningful deal out of Copenhagen needs to set out real reductions from the countries who have done the most to cause the problem.

“Indira Samarasekera, the president of the University of Alberta, was right to show concern for the future education of Canada’s young men…

The barbs that have been directed at Ms. Samarasekera are unwarranted and shortsighted. She warned that the country’s universities are unwittingly building a “demographic bomb”: for the first time, men are noticeably underrepresented at Canadian universities, accounting for only 42 per cent of their students despite making up half the nation’s population.

She worries “that we’ll wake up in 20 years and we will not have the benefit of enough male talent at the heads of companies and elsewhere,”

http://www.theglobeandmail.com/news/opinions/editorials/the-male-minority/article1392251/

The editorial does go on to note that “women hold only 5 per cent of the country’s top jobs and are, on average, still paid less than men.” But they could have considerably amplified this by noting that increased university enrollment among women relative to men has had absolutely no impact to date on the pay gap between male and female university graduates.  Indeed the ratio of pay of full time/full year women university graduates to male graduates has fallen from a peak of 72% in the mid 1990s.  The most likely explanation is that men continue to dominate well-paid professional and managerial jobs requiring a university education in the private sector, while women predominate in lower paid public sector jobs requiring a university degree. The shift of income to the very high end of the income distribution has overwhelmingly favored men over women. In short, the hold of men on top positions in the Canadian job market is scarcely threatened.

The research basis for the above can be found in a recent CLC paper “Women in the Workforce: Still a Long Way from Equality.”

http://www.canadianlabour.ca/news-room/editorial/women-workforce-still-long-way-equality

For over 40 years, Statistics Canada has produced a statistic called Low Income Cut-Offs (LICOs), and for almost as many years, that statistic has been improperly cited as a measure of poverty in Canada. This, despite the fact that Statistics Canada has continually emphasized that it is inappropriate to equate LICOs with poverty lines.

This type of statement has bugged me for years. How can a statistical agency develop a measure of poverty, call it “low income”, and then have the audacity to point the finger at anyone who dares call it a poverty line. The logical retort is to ask them why they do not then develop a “real” poverty line. Statscan’s position is something like, you cannot talk about the numbers of people who are poor because we refuse to measure them.

But the piece gets better. The author reviews a simplified methodology of how the LICOs are calculated and how that can be influenced by how well-off people are at different points in time. That is, overall, people today spend a lot less of their income on the basics, and the LICOs are just an arbitrary cut-off relative to that amount. This is an important point, although other attempts to measure poverty don’t really change the percentages that much.

The punchline goes like this:

Based on LICOs, British Columbia had the highest incidence of low income in the country in 2007, but these LICOs are based on national expenditure figures. … To see how this can be problematic, one need look no further than the difference in the price of housing by province. British Columbia has by far the highest housing prices, on average, in the country. In 2008, the average house price in BC was almost 50% higher than the Canadian average. The problem is exacerbated even further when urban areas are compared. … While the difference in rents are not quite as dramatic, they are still significantly higher in Vancouver compared to most other cities with greater than 500,000 population across the country. Given that the cost of shelter comprises by far the largest portion of spending on food, shelter and clothing, this renders LICOs a dubious means of regional comparison, let alone as a measure of poverty.

I’m not sure I agree with that last clause, since the costs of food and clothing are not much different across the country. If housing is what matters, my takeaway from that discussion is that BC’s poverty problem must be even worse because of our high costs of housing. The author may really just be making a methodological point that provincial numbers should be based on provincial not national data.

This precipitates a general question about “what is poverty?” that inevitably leads to absolute measures based on minimum consumption of necessities. The author makes a pitch for the Market-Basket Measure (developed outside of Statscan by the federal department of Human Resources Development) although this one too holds up the finding that BC has the highest poverty rate in the country.

The MBM is indeed a useful measure, but it would be a loss not to consider relative position in society as an aspect of poverty. In fact, the grandfather of economics, Adam Smith, clearly argues for a relative definition of poverty: “By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but what ever the customs of the country renders it indecent for creditable people, even the lowest order, to be without.”

Adam Smith, it should be noted, was not a right-wing ideologue. He would not have worn the Fraser Institute’s “Adam Smith tie”, which is sort of a burkha for free market fundamentalists. The Fraser, it should be noted, is in the shadows of this discussion, having promoted a “thin gruel” absolute measure of poverty for many years. The development of the MBM was a response to them, and after all of that effort, poverty based on the MBM is not much different than based on the much-maligned LICO.