Canadian Mining and Manufacturing Stumble
Posted by Erin Weir under GDP, manufacturing, oil and gas, potash, StatCan.
April 30th, 2012
Comments: 1
Statistics Canada reported today that the economy shrank in February, driven by declines in resource extraction and manufacturing.
Oil and gas extraction as well as hard-rock mining decreased due to temporary shutdowns. However, the most dramatic decline was in potash production, down 19% due to mine closures in Saskatchewan. The provincial government, which is budgeting a substantial increase in potash revenue for the coming fiscal year, must hope that this slowdown proves to be temporary.
Manufacturing had been a bright spot in the otherwise lacklustre economic news of recent months. There were signs of a nascent recovery driven by the auto sector. But in February, manufacturing declined by 1.2% after five consecutive monthly increases.
There was also a striking revision of previous data on durable-goods manufacturing. Last month’s release had indicated that durable goods expanded by 0.8% in January. This morning’s release changed that figure to a decline of 0.2% while also reporting a further decline of 0.9% in February.
The apparently positive trend in Canadian manufacturing is now in doubt. Weak manufacturing makes Canada’s economy even more dependent on inherently volatile extractive industries.
February’s drop in resource and manufacturing industries was cushioned to some extent by stability in the public sector. That may not be the case in future months as government austerity takes hold.
Quebec Tuition: Between a Rock and Hard Place?
Posted by Nick Falvo under Bank of Canada, budgets, Conservative government, corporate income tax, debt, deficits, economic crisis, economic growth, economic literacy, economic models, economic thought, education, equalization, financial crisis, fiscal federalism, fiscal policy, heterodox economics, inflation, interest rates, macroeconomics, monetary policy, post-secondary education, progressive economic strategies, Quebec, social policy, student movement, user fees.
April 28th, 2012
Comments: 17
In the context of student protests over Quebec tuition fees, my friend Luan Ngo has just written a very informative blog post on Quebec’s fiscal situation.
While I encourage readers to read his full post, I do want to use the present space to make mention of three important points he makes:
-On a per capita basis, Quebec spends more on government programs than most other Canadian provinces.
-Residents of Quebec pay more personal incomes taxes than any other province.
-Quebec’s debt-to-GDP ratio is significantly higher than that any other Canadian province.
He argues that, in light of the above, “Quebec is in a bind, stuck between a rock and a hard place.”
While I believe Luan makes an extremely important contribution to the debate, I think it’s crucial to make mention of the role of the federal government. I would argue that successive federal governments have in fact brought on this so-called crisis.
When Paul Martin was federal finance minister, he brought in several tax reductions. One was the $100-billion tax-cut package he brought in with the 2000 federal budget; he also brought in important reductions to capital gains taxes. By the time Chretien/Martin left office, the federal government’s fiscal capacity (annually, and assuming a balanced budget over the business cycle) had been reduced by approximately $30 billion. After the Harper government came to power in 2006, this trend continued, as the Harper government continued what Chretien/Martin had started (including a reduction in the GST).
It therefore won’t surprise many readers to learn that, while the federal government at one time covered 80% of a typical Canadian university’s operating budget, today the federal government covers just 50% of a typical university’s operating budget. If you’re a federal government, it seems you can’t have your cake and eat it too!
Thus, I would argue that the current “crisis” in Quebec over tuition fees has been largely created by successive federal governments that have defunded Canadian universities, indeed putting provincial governments “between a rock and a hard place.”
And if successive federal governments have taken us in one direction on taxation levels, they also (if they so choose) have the option of reversing course. What goes up can also go down, and vice versa.
Finally, I feel it would be irresponsible for me not to point out that there are schools of thought (ones that are becoming somewhat more prominent in light of the financial crisis) that do not accept a lot of the limits and boundaries of neoclassical economics. Some economists have argued, for example, that if a central bank keeps real interest rates low (but positive) over the long term and allows for moderate inflation, a country with its own currency can increase spending very substantially over the long term without increasing taxes. PEF Blogger, Arun Dubois, has blogged extensively about some of these other perspectives.
PEF Conference, June 8-9
Posted by Erin Weir under Alberta, PEF.
April 28th, 2012
Comments: none
The Progressive Economics Forum will be occupying the Calgary School (also Jim’s and my alma mater) on June 8 and 9 at the annual Canadian Economics Association conference. Our schedule of sessions is now available.
Climate change will shape BC in 2035, one way or another
Posted by Marc Lee under BC, carbon pricing, climate change, oil and gas.
April 28th, 2012
Comments: 1
I have an oped in today’s Vancouver Sun as part of its BC in 2035 series.
Climate change will shape BC in 2035, one way or another
We live on a different planet from the one our parents grew up on, says environmentalist Bill McKibben. Climate change from our rampant combustion of fossil fuels has pushed the world into a new era of bizarre weather anomalies.
In BC, warming has been greater that the global average, with costly consequences, including the pine beetle epidemic, downtime for ferries and highways, raging forest fires and flooding.
The big question is whether carbon emissions can be stabilized at some level by human collective action, or whether we will soon pass critical thresholds that will trigger a runaway climate change scenario.
Canada has recently thumbed its nose at global negotiations, in favour of digging ever deeper into the hole of extreme energy that is causing the problem. Even though climate costs are mounting – in Canada and especially in poorer and more vulnerable countries – the immense profits from our exports of coal, gas and oil dominate Canadian politics.
British Columbians in 2035 will be facing a variety of climate-related challenges to a decent quality of life. Food supplies from California will dry up; storms will be more devastating; animal and plant species will be threatened. Even if we are lucky, climate impacts in other parts of the world could lead millions to our shores.
High and growing inequality undermines trust in our fellow citizens, and threatens to erode the social foundation of this future. As federal and provincial governments tear page after page from the social contract, we are moving to a society where you are on your own.
Our current period of official denial cannot last much longer. It may, tragically, take another Katrina-scale disaster, or two or three, but sooner or later, the realities of climate change will catch up to Canadian and US politics.
BC should not get caught flat-footed, but instead the province needs to be proactive to address our share of carbon emission reductions. The good news is that in doing so we can seize new economic opportunities offered by the transition to green jobs and sustainable production. BC’s baby steps on climate action are a plus, and we have the smarts, the technology and institutions to re-write this story.
BC is ideally poised to show the rest of the world what a 21st century sustainable economy can look like. A wealthy part of the world, blessed with abundant resources, BC has a moral obligation to take a leadership role. But it’s also good economics — despite brash claims about job creation, mining and oil and gas only employ about 1% of BC’s workers. There are far more jobs to be had in green alternatives.
Putting climate action at the heart of BC’s industrial and employment strategy requires that BC rapidly shift off fossil fuels. By 2035 we could be very close to zero carbon. But that means having the political will to say no to the proposed Enbridge pipeline, to shale gas fracking and liquid natural gas terminals. And unlike the current “BC Jobs Plan”, it means aspiring to be more than a peddler of fossil fuels in global markets.
The great transition also requires we break out of a mindset based on individual green consumption towards collective action and structural changes.
First, public control over (largely renewable) electricity infrastructure is a vital advantage for BC in a shift to a zero-carbon future. Conservation and major efficiency gains are low hanging fruit, supplemented by district energy systems and small-scale renewables (like solar hot water systems). Retrofitting BC’s housing stock and commercial buildings will also support thousands of jobs.
Second, we must redesign urban spaces into “complete communities” where people do not have to travel very far to get to work or to meet day-to-day needs, making it possible to walk, bike and use high-quality public transit. These communities include a mix of housing types (including affordable housing options), decent jobs, public services and spaces, and commercial districts.
This way of designing communities levels the playing field for seniors, youth, people with disabilities, and low-income families so they can live and move easily, even if they are not able to drive or cannot afford a car. It also means families are not forced to choose between long commutes by car and even longer commutes by transit.
Building retrofits, public transit and so forth will not be cheap. But there is a logical and obvious revenue source to make it happen: a carbon tax. At $200 per tonne by 2020, this would close the gap between BC and European gas prices, and raise billions per year. A portion of the revenues should be transferred back to low- to middle-income households to ensure none are left behind.
Importantly, we face a political problem not a technological one. We will still have to deal with the fallout of climate change, but done well, a bright green future would go hand in hand with better health, stronger communities, and improved quality of life.
The Quebec Student Protests: ‘Going International’
Posted by Nick Falvo under education, Occupy Movement, post-secondary education, progressive economic strategies, Quebec, social policy, student movement, user fees.
April 28th, 2012
Comments: none
A recent article by Stefani Forster, of the Canadian Press, suggests that the Quebec student protests may be starting a larger social movement outside of Quebec.
According to the article:
In the last few days, Quebec’s student protests have received coverage in French news outlets like Le Monde and Agence France-Presse, in Australia, in New Zealand, and in the U.S., including on CNN.
A New York Times blog suggested tuition fees and student debt could become a key theme in President Barack Obama’s bid for re-election as the president tries to energize young voters. The “French-Canadian students” were cited as an example in the tuition debate, as part of an international outcry against the high price of education.
Quebec Students: “Faire Leur Juste Part”
Posted by Nick Falvo under demographics, education, fiscal federalism, post-secondary education, Quebec, social policy, student movement, user fees, young workers.
April 28th, 2012
Comments: 2
Simon Tremblay-Pepin, an emerging social policy scholar, has recently blogged here (in French) about Quebec tuition fees.
He points out that, when one adjusts for inflation, Quebec tuition fees are headed into uncharted territory. Indeed, contrary to some recent spin from the Charest government, Tremblay-Pepin makes two important observations:
1. When one takes an average of Quebec tuition fees over the past45 years (using constant dollars), current Quebec tuition fees are significantly higher than the 45-year average.
2. The tuition-fee increases being proposed by the Charest government would bring Quebec’s tuition fees to their highest levels ever.
The above observations call into question what the Charest government actually means when it asks today’s generation of Quebec students to “pay their fair share.” Or, as they say in French, “faire leur juste part.”
Discussing Quebec Student Protests on Talk Radio
Posted by Nick Falvo under debt, education, fiscal federalism, household debt, Newfoundland and Labrador, Ontario, part time work, post-secondary education, privatization, Quebec, social policy, student debt, student movement, user fees, young workers.
April 26th, 2012
Comments: 1
Last Friday, I blogged here about the Quebec student protests. Subsequently, I was invited to appear on 580 CFRA News Talk Radio, with hosts Rob Snow and Lowell Green.
I should note that Mr. Green is the author of several books, including:
-How the Granola Crunching, Tree Hugging Thug Huggers are Wrecking our Country;
-Mayday Mayday. Curb Immigration. Stop Multiculturalism Or It’s The End Of The Canada We Know;
-Here’s Proof Only We Conservatives Have Our Heads Screwed On Straight
(Rest assured that Mr. Green is no more subtle on-air than when choosing titles for his books.)
You can listen to the 24-minute audio clip here.
Points I raised during the show include the following:
-Senior levels of government in Canada used to cover 80% of the operating grants of Canadian universities. Today, the figure is 50%.
-The percentage of Canadian post-secondary students who work during the academic year has doubled since the mid-1970s.
-Quebec has the lowest tuition fees in Canada. It also has substantially lower student debt than many other provinces. The average fourth-year undergraduate student in Quebec who holds student loans has $11,000 less student debt than their Ontario counterpart.
-Newfoundland and Labrador, which has invested substantially in post-secondary education in recent years (and now has tuition fees that are almost as low as in Quebec), is seeing positive outcomes. In the late-1990s, 20,000 persons in Newfoundland and Labrador had student debt. Today, just 8,000 of them do.
-Two years ago, Leger Marketing conducted a major survey of Quebec university students; more than 12,000 undergraduates were surveyed. Findings include the fact that more than 50% of Quebec’s undergraduate students live on less than $12,000/yr. (this includes funding from all sources, including scholarships, government grants/loans and money from family); 40% of Quebec undergrads receive no financial assistance whatsoever from their family members; and more than half of full-time undergraduate students in Quebec receive no financial assistance whatsoever.
-I made two points about household debt as well. First, it’s grown very significantly in Canada over the course of the past two decades. Second, those carrying the most household debt are persons aged 25-44, precisely the group that also faces the largest amounts of student debt. Ergo: if we want to get household debt under control, increasing student debt levels is not going to help.
PBO Strikes Again
Posted by David Macdonald under economic growth, economic models, federal budget, fiscal policy, inequality, labour market.
April 25th, 2012
Comments: 4
I wanted to tip my hat to the hard working folks at the PBO for a particularly revealing Economic and Fiscal Outlook that was published today. While the PBO has more than once eaten my lunch on various issue they’ve done a superb job of looking at Canada’s economic and fiscal position. Read more »
The Oil Price-Loonie Transmission Mechanism
Posted by Jim Stanford under energy, exchange rates, monetary policy.
April 23rd, 2012
Comments: 6
The most interesting comments from Bank of Canada Governor Mark Carney last week, in releasing the Bank’s semi-annual Monetary Policy Report, dealt with the relationship between the price of oil and the Canadian currency. The Globe and Mail reported Carney as publicly questioning why currency traders automatically presume such a direct link between the loonie and the world oil price. After all, he accurately pointed out, Canada produces a lot more than just oil. Why do traders associate our currency with commodity prices in general, let alone this single particular commodity?
Mr. Carney’s remarks had an obvious underlying motivation: one important concern restraining any future interest rate tightening by the Bank is its concern over a subsequent upward shock to the loonie (which would further batter our already-weak trade performance). By encouraging currency traders to interpret the dollar’s value more broadly, Carney is trying to short-circuit that kind of reaction.
Moreover, I would argue, there are deeper questions regarding the nature of the “transmission mechanism” by which changes in the oil price would indeed impact the exchange value of our loonie. The statistical correlation between the two variables seems undeniable: a simple first-difference regression finds that oil prices explain 86% of the variation in the dollar (as described in the CAW’s recent paper on auto policy, “Rethinking Canada’s Auto Industry“, p. 15). But what explains this link in behavioural terms? That’s a question that is rarely asked.
Many analysts explain the link simply as reflecting “strong world demand for the things Canada produces.” This is not directly true. Canada’s exports of petroleum and a few other staples have boomed, it’s true (both because of growing real quantities and rising unit prices). But Canada’s overall trade balance has sagged badly during most of the last decade’s energy boom. The decline in non-resource exports of all kinds (both goods and services, undermined by the overvalued currency) has far outweighed the expansion in resource exports. In sum, we presently run a current account deficit worth some $50 billion at annualized rates. That’s a much bigger deficit than the federal government deficit (and much more dangerous, I would argue), yet it gets a fraction of the public attention. If the world really wanted more of Canada’s output, we wouldn’t be experiencing this contractionary deficit. (Arthur Donner and Doug Peters recently shone some badly needed light on the current account deficit in this Globe and Mail op-ed.)
The link between real FDI flows (in and out) and the level or change in the dollar is a more realistic possibility, but still not fully convincing. To be sure, many petroleum companies and projects have been acquired by foreign companies and investment funds, and more are on the shopping list. In total, however, Canada has been a significant net exporter of FDI since 2007 (after the completion of the extraordinary wave of foreign takeovers that year), which should imply a lower demand for loonies (and hence a lower exchange rate).
I think the link between oil prices and the dollar is experienced more broadly in the form of enhanced foreign appetite for Canadian assets (and especially resource assets) more generally. That doesn’t require actual FDI flows, or capital flows of any kind, since forward-looking currency traders will build those expectations of value into their judgments and portfolio decisions. Petroleum super-profits have made Canadian resource companies attractive assets for investors of all nationalities. Substantial corporate tax cuts reinforce this unique profitability. Meanwhile, Canada is unique among major oil-exporting countries in having virtually no limitations on foreign ownership of the non-renewable resource itself.
I recently wrote a “primer” on the determinants and effects of the Canadian dollar for Relay (the journal published by the Socialist Project). There (and elsewhere) I have argued that the link between the price of oil and the currency could be broken by measures aimed at slowing and more carefully regulating the pace of energy developments (especially in the oil sands), reducing the profitability of those projects (through higher taxes and royalties), and by restricting foreign ownership of petroleum assets. Structural measures like that would be more effective in the long-run, I suggest, than traditional central bank interventions (selling Canadian-dollar-denominated assets in international markets), and certainly than “jawboning” by the central bank.
McGuinty Budget Would Cut Over 100,000 Jobs
Posted by Erin Weir under budgets, economic models, employment, GDP, liberals, Ontario.
April 23rd, 2012
Comments: 3
Last week, the Ontario Public Service Employees Union released an interesting report by the Centre for Spatial Economics on the economic impact of proposed provincial budget cuts. It provides a timely reminder that the public sector is a crucial component of the economy, with public spending also supporting many private-sector jobs.
The Centre for Spatial Economics concludes that the Liberal budget presented last month would subtract 0.6 from provincial GDP growth and eliminate 105,000 jobs (65,000 public and 40,000 private) in 2015. Removing over $20 billion from Ontario’s economy would in turn reduce annual provincial tax revenues by over $2 billion.
It’s worth noting that the economic cost of provincial austerity would be in addition to federal austerity, which is already having a visible effect in Ontario.
Neil Reynolds’ Fuzzy Tax Math
Posted by Erin Weir under media, NDP, Neil Reynolds, Ontario, super-rich, taxation.
April 21st, 2012
Comments: 8
If you need help with your tax return, don’t ask Neil Reynolds. His latest attack on the New Democrat proposal to collect modestly more tax from Ontario’s super-rich stated that “the province’s highest marginal rate on personal income would rise, federal and provincial rates combined, from 46.4 per cent to 49.4 per cent – meaning that this rate would theoretically net $247,000 in revenue.”
The New Democrat proposal would actually produce a top combined marginal rate of 49.5%. (Reynolds got this figure right in his prior column on the subject.)
As far as I can tell, Reynolds arrived at $247,000 by multiplying $500,000 and 49.4%, treating a top marginal rate as though it were a flat or average rate. In fact, the New Democrat proposal would apply only to income in excess of $500,000. Taxes on the first $500,000 would not change.
One has to wonder whether similarly fuzzy math underlay Reynolds’ previous claim: “People who make more than $500,000 already work full-time for the state (federal, provincial and municipal) for perhaps eight months a year.” Read more »
Meilinomics I: The Little Boats
Posted by Erin Weir under economic growth, health care, homeless, Saskatchewan, social democracy.
April 20th, 2012
Comments: 2
The following is an excerpt from Dr. Ryan Meili’s new book, A Healthy Society: How a Focus on Health Can Revive Canadian Democracy.
There’s a family that comes frequently to the West Side Clinic; we’ll call them Lucas and Annie. Hardly a week goes by that I don’t see them in for a medical visit or just hanging out in the waiting room. They both have chronic medical conditions; he’s had some trouble with the law; they’ve struggled with addictions. They can be friendly and charming, and they can be absolute pains. One of their daughters, Jaelynn, got sick a couple summers ago. Nothing too serious, but it required some specialist visits and more frequent follow-up with our clinic.
That was the summer we first started to see a new kind of homelessness in Saskatoon. The shelters at the YWCA and the Salvation Army were always full. There were more tents in the parks by the river. And in the mornings at West Side there was a line-up for the waiting room because people needed to have a place to hang out all day when they weren’t welcome in the shelter or at the house where they were couch-surfing. Lucas got picked up for missing parole and had to spend thirty days behind bars. With him unable to contribute, and rent getting raised, they lost their apartment. Read more »
Rex Murphy’s Naive Take on the Quebec Student Protests
Posted by Nick Falvo under education, fiscal federalism, housing, Newfoundland and Labrador, post-secondary education, poverty, Quebec, social indicators, social policy, student debt, student movement, user fees, young workers.
April 20th, 2012
Comments: 10
On CBC’s The National last night, Rex Murphy weighed in on Quebec’s student protests; the transcript can be found here, and the three-minute video here. He calls the protests “short sighted,” points out that Quebec already has the lowest tuition fees in Canada, and suggests the students’ actions are “crude attempts at precipitating a crisis.” He says they are the “actions of a mob,” are “simply wrong,” and should be “condemned.”
I am glad to learn that Mr. Murphy does not feel inhibited when it comes to expressing himself. However, I think his analysis would be stronger if it included a bit of nuance.
I would urge Mr. Murphy to consider the following:
First, as recently as 1979 in Canada, government grants covered 80% of a university or college’s operating budget. Today, they cover approximately 50% of a university or college’s operating budget. Times have certainly changed.
Second, indicators gathered from reliable survey data paint a troubling picture of living conditions for post-secondary students in Quebec. Relatively recent data suggest the following:
-50% of full-time undergraduate students in Quebec live on less $12,200 per year. This includes any funds from internal and external scholarships, money from co-op programs or internships, government grants or loans, money from family and child support.
-40% of undergraduate students in the province receive no financial assistance whatsoever from their family members.
-More than 80% of Quebec’s full-time undergraduate students are gainfully employed. Of those who are gainfully employed, roughly half work more than 15 hours per week.
-Two-thirds of full-time undergraduate students in the province do not live with their parents.
-20% of Quebec’s full-time undergraduate students over the age of 24 have at least one child of their own.
-More than half of full-time undergraduate students in Quebec receive no financial aid whatsoever.
-57% of Quebec’s full-time undergraduate students pay more than 30% of their income on housing. (Note: Canada Mortgage and Housing Corporation considers a household to be in “core housing need” if it cannot find suitable, adequate housing in the local market without paying more than 30% of its income on housing.)
Third, Quebec’s lower tuition fees appear to bring about positive outcomes. Though Quebec does have the lowest tuition fees in Canada, it also has higher post-secondary participation rates than in the rest of Canada. It should also be noted that students in Quebec typically graduate with considerably lower student debt than their counterparts in Ontario, which has the highest tuition fees in Canada.
What’s more, in Newfoundland and Labrador, where the provincial government has increased funding for post-secondary education in recent years and reduced tuition fees such that they are now among the lowest in Canada (almost as low as Quebec), enrollment has increased quite substantially, and student debt has decreased very substantially.
Clearly, there is more to the Quebec student protests than meets the eye. One can choose to condemn them. One can also seek to understand them.
Deflating the Monetary Hawks
Posted by Erin Weir under inflation, interest rates, monetary policy, OECD, Ontario, StatCan.
April 20th, 2012
Comments: 4
Canada’s business press has recently been filled with speculation that the Bank of Canada may soon hike interest rates based on its somewhat more optimistic economic outlook. But today’s Consumer Price Index report indicates that there is no need to raise interest rates. Statistics Canada reported that both headline and core inflation fell to 1.9% in March, slightly below the central bank’s 2% target.
Higher interest rates are not warranted to combat already low inflation, but could derail Canada’s fragile economic recovery by increasing borrowing costs and driving up the overvalued loonie. The latest OECD data on purchasing power parity indicates that the loonie should be worth 76 American cents.
The fact that financial markets price Canadian exports at a far higher exchange rate is producing a huge trade deficit. Higher interest rates would aggravate this imbalance, which the Bank of Canada has identified as a drag on economic growth.
Accommodative monetary policy will also be needed to cushion the effect of tightening fiscal policy. With both federal and provincial governments cutting back, Canada’s economy is not well positioned to also absorb higher borrowing costs and an even higher exchange rate.
The only seemingly legitimate rationale for higher interest rates would be to curtail household debt. However, consumer borrowing can be addressed through financial regulation rather than monetary policy.
A positive feature of today’s Consumer Price Index figures is that Canada’s average hourly wage has finally increased more than inflation (2.6% versus 1.9% in March). But Ontario wages continue to lag behind provincial inflation (1.8% versus 2.2%).
UPDATE (April 20): Interviewed on CityNews and BNN (video)
UPDATE (April 21): Quoted in today’s Financial Post and other Postmedia newspapers
When a University Recruits Abroad, Who’s in Charge?
Posted by Nick Falvo under China, education, Manitoba, P3s, post-secondary education, privatization, social policy.
April 20th, 2012
Comments: none
A few years ago, I wrote an opinion piece on “pathway colleges”—i.e. private companies that recruit students from other countries and then ‘bridge’ them into Canadian universities by providing pre-university courses, including English as a Second Language.
A recent CBC News article underlines how perilous such recruitment of post-secondary students from abroad can be, and why it is important that lines of accountability be clear. The article reports on how a “University of Winnipeg recruitment agent” overcharged students who had recently been recruited from China. The students were charged as much as $3,000 per month for room and board.
The students in this case attended the University of Winnipeg Collegiate, which appears to be the high school equivalent of a pathway college. It is located on the campus of the University of Winnipeg, and the CBC article states that it is “part of the University of Winnipeg.”
Two quotes from the article really struck me. The first is from the senior adviser to the President of the University Winnipeg. In reference to the overcharged students, he said: “Their parents entered into a relationship that was outside of the purview, and a contract outside of the institution’s awareness and purview—and in that sense, legal responsibility.”
The second quote is from Elizabeth Saewyc, a University of British Columbia professor who has done research on students in similar ”homestay” arrangements. In reference to the issue of who’s responsible for the overcharging in this case, she says: “This lack of sort of figuring out who’s in charge really creates the opportunity for kids to fall through the cracks.”
I think this story underlines the importance of clear lines of accountability when Canadian universities recruit students from abroad, especially when it’s done on a for-profit basis. When private actors enter into such “partnerships” with Canadian universities, who—if anyone—is accountable?
A Bank for the Taxpayer’s Buck?
Posted by Arun DuBois under Bank of Canada, banks, taxation.
April 18th, 2012
Comments: 3
Hi all,
I interrupt your regular blog viewing to bring you one of my infrequent posts, this time by a guest contributor — Alan Milner — who for reasons of job security, must remain anonymous. With no further ado:
*******************************************************************
A Bank for the Taxpayer’s Buck?
The Canadian tax system provides a variety of incentives meant to support the productive players of our economy. But what if a particular type of tax incentive such as the dividend tax credit, initially intended to encourage investment and risk taking, became misused by Canadian banks to design riskless or unproductive operations? And what if these operations were engineered with the sole aim of making a profit at the expense of the public purse?
On April 2, 2012, the U.S. Commodity Futures Trading Commission (CFTC) filed a lawsuit against the Royal Bank of Canada (RBC). The U.S. CFTC alleges that a small group of RBC executives carried out hundreds of millions of dollars of “wash trades” between “at least” June 2007 and May 2010 in countries and tax havens where RBC maintains operations in a bid to claim dividend tax credits from Canada’s Revenue Agency (CRA) without financing productive activities. According to the U.S. CFTC lawsuit, a few executives from RBC’s “Central Funding Group” based in various geographical locations worked to design schemes that took advantage of Canadian dividend tax credits related to common stocks.
In addition to the “wash trades” allegations, the U.S. CFTC alleges that these RBC executives set prices for the future contracts “internally”, which means the contracts were not subject to competitive market pricing as required by U.S. regulations, charges that the bank denied.
RBC did not deny that it took advantage of Canadian tax benefits associated with Canadian and U.S. stock dividends. But it was done at the expense of the real economy and is perfectly legal under the current Canadian regulatory regime.
Interestingly enough, the same week, on April 3, 2012, Terry Campbell, the head of the Canadians Bankers Association requested a “pause” on global financial reforms. These reforms were aimed at avoiding a repeat of the 2008 global crisis, which was triggered by elaborate derivatives trades very likely not too dissimilar in complexity from the alleged tax schemes for which RBC executives are now being sued by a U.S. regulator. Mr. Campbell cited the “unintended consequences” of those reforms, because “no one knows what impact the comprehensive reforms would have on the system”
BMO Professor vs. Bank Regulation
Posted by Erin Weir under banks, C. D. Howe Institute, financial regulation, media.
April 18th, 2012
Comments: 2
Last week, the C. D. Howe Institute was out with an op-ed contending that Canadian household debt is not worth worrying too much about: “There does not seem to be a strong case for restrictive regulation of consumer credit products, such as tight caps on interest rates.”
The C. D. Howe Institute arguing for looser financial regulation is nothing new. On the eve of the global financial crisis, it released a paper presenting more securitization as the antidote to financial risk.
But Andrew Hepburn draws my attention to the byline under last week’s op-ed: “Jim MacGee is a Bank of Montreal Professor and Associate Professor of Economics at the University of Western Ontario.”
So, the Bank of Montreal Professor does not want stronger consumer-credit regulations applied to banks. What’s next? The Enbridge Professor endorsing the Northern Gateway pipeline?
The Economics of Deception
Posted by Erin Weir under big business, Blogroll, Conservative government, economic models, exchange rates, oil and gas.
April 17th, 2012
Comments: 3
The following is a guest post by Robyn Allan, the former president of the Insurance Corporation of British Columbia who appeared with me on TVO’s panel about Dutch disease. It summarizes her recent paper: An Analysis of Canadian Oil Expansion Economics.
There is a chorus singing the praises of the oil industry and its vast economic benefits — from the boardroom of pipeline company Enbridge to the office of the Prime Minister. They advocate rapid expansion and export of crude oil resources as a panacea for our economic future. They cite big numbers from numerous studies.
The reports are used like quantitative billy clubs to beat back public inquiry and drive the discussion away from a thorough examination of macroeconomic implications. Instead, we have a forced narrative — industry financial gain must take precedence over environmental risk and First Nations’ rights. This is a false dichotomy.
The reports include Enbridge’s Application to the National Energy Board in support of Northern Gateway pipeline; Canadian Energy Research Institute’s (CERI) studies No. 122, 124, 125 and 128; the University of Calgary’s School of Public Policy paper, Catching the Brass Ring; and the Wood Mackenzie report prepared for the Government of Alberta.
The benefits range from hundreds of thousands of jobs and trillions of dollars in Gross Domestic Product (GDP) in CERI’s studies, $270 billion from Enbridge, $132 billion from the University of Calgary, and $72 billion from the government of Alberta.
These studies suffer from serious weaknesses which render the results not only unreliable, but unusable.
1. Input-Output Model: All the studies calculate a benefit without sensitivity analysis and develop a single long-term scenario. No board of directors would accept this approach when making an important investment decision, particularly when the rosy picture is forecast to continue for decades. All but Wood Mackenzie use this information as input into an Input Output (IO) model to further expand their case. Read more »
My Guest Appearance on Lang & O’Leary
Posted by Bruce Livesey under media.
April 16th, 2012
Comments: 12
As part of promoting my book Thieves of Bay Street last week I was booked as a guest on the Lang and O’Leary Exchange, CBC’s one-hour daily business show.
Admittedly, I am not a regular viewer, although I have seen enough of Kevin O’Leary to recognize he embodies the worst of 2010s capitalism: Arrogant, caustically right-wing, and generally unpleasant.
Lang joined the CBC a few months before I left the Corp. and I had occasion to meet her a couple of times. To me she represented the new CBC that Richard Stursberg, the head honcho of the network at the time, had been busy molding: corporate, flinty, cold, fast-paced and nakedly ambitious. The daughter of former Trudeau cabinet minister Otto Lang, Amanda is a liberal who can mix it up with the big boys of corporate Canada. She is smart and moxie but as icy as they come.
Of all the interviews I was going to do for the book, this one gave me some trepidation. I figured that if either of them bothered to read Thieves, they would hate it. Especially O’Leary. They are also smart people and know the financial world. So they would not be sympathetic interviewers.
I was led out from the greenroom and asked to sit on a small couch at the side of the studio as I waiting to be led to the raised glass-plastic desk where Lang and O’Leary carry out their jousting. And right away I got the tenor of the show. Everything was rapid-fire reports and the two of them bickering at high volume. He would leaven his remarks with nasty conservative asides. At one point I could hear him talking about Spain and the need to kill off socialism and wait for a new generation of Spanish to be born who would embrace capitalism.
One of the appalling things about how the CBC has changed is the fact that O’Leary would be given so many platforms on the public tab. He is a “Dragon” on “Dragon’s Den”, he has his own show (Lang & O’Leary), and now he has a reality program “Redemption”. And yet O’Leary also runs an investment fund, O’Leary Funds, which he promotes on the CBC, our national public broadcaster. Meanwhile, shows like Marketplace have been reduced to half a season of episodes every year. It’s all so bloody awful.
Finally, a commercial break, and I was ushered up to the desk. As I sat down, Lang and O’Leary were engaged in a heated low-level discussion. “Oh f— off Kevin” Lang finally snapped at him in irritation. O’Leary, apparently, had offered the view that the next US election would be about whether Obama was really an American. I could imagine Lang must find dealing with O’Leary’s Glenn Beck insanity a bit trying after awhile.
Neither of them bothered to look up from their Blackberrys to greet or acknowledge my existence. Finally, Amanda said with no warmth, still engrossed in her cellphone, “Hello Bruce”.
The commercial ended. You can watch the result here at the 49:20 mark:
http://www.cbc.ca/video/#/News/Business/1239849460/ID=2222008936
It lasted a mere five minutes and we never really broke out into fisticuffs as I sort of hoped it would. And then another commercial and I left.
Social Statistics: Ignorance Is Bliss
Posted by Andrew Jackson under social indicators, social policy, StatCan.
April 12th, 2012
Comments: 5
Pretty soon asking even the most basic social policy questions will require huge amounts of investment in primary research. Regularly published statistical reports and summaries are disappearing by the minute.
The elimination of the National Council of Welfare in the Budget means that we will no longer be getting Welfare Incomes, a more or less annual publication which allowed one to compare provinces with respect to social assistance benefits by family type.
Good luck pulling that information together on your own from provincial web sites.
While one can still quite readily get data on the incidence, depth and duration of poverty from StatsCan, we no longer get regular analytical reports on low income of the kind which used to be published by the National Council of Welfare and by the now virtually defunct Canadian Council on Social Development.
I am a bit behind the curve here, but just learned that HRSDC has recently stopped making available on their web site “Social Security Statistics: Canada and Provinces” , a formerly annual huge compendium of statistics on expenditures and beneficiaries of a wide range of income support programs. (Go to Gilles Seguin’s invaluable web site for more detail and archived reports.)
Deep cuts over at Statscan will almost certainly mean far, far fewer analytical reports on social issues, and the elimination of even more surveys.
So, look forward to even more fact free policy debate.
Later Retirement: A Win – Win Solution?
Posted by Andrew Jackson under Old Age Security, older workers, pensions.
April 12th, 2012
Comments: 15
The C D Howe Institute have put out a study on later retirement by Peter Hicks, a former senior official with HRSDC and the OECD who has written a lot on the policy implications of ageing societies. I find this to be one of his less convincing efforts.
The argument – with parenthetical comments – is as follows.
1) Employment rates of older workers, including those over age 65 have been rising rapidly, and this trend can be expected to continue “without any policy action” (p.20). Indeed, employment rates can be expected to rise significantly higher and future retirees can be expected to work at least five years longer on average. (A convincing case is made that current base case scenarios under-state the degree to which older workers will retire later.)
2.) The rise in employment rates has already been keeping pace “more or less” in line with increasing life expectancy. (True, p.3. The implication is that we are already set for an increase in expected proportion of the life course spent in paid work compared to the bottom reached about a decade ago.)
2) While not the whole story, an important part of the reason for later retirement is eroding employer pension coverage, low returns to savings and inadequate retirement savings for future senior age cohorts. (True, pp 8-9.).)
3) Later retirement will reduce cost pressures on public pensions and increase the supply of labour, greatly reducing the anticipated costs of population ageing.
Therefore, we should raise the age of eligibility for both the Canada Pension Plan and Old Age Security. (!!!)
The policy conclusion is a complete non sequitur. The problem of costs from ageing is exaggerated. There is a growing retirement income security problem. Therefore, we should restrict access to public pensions even though they do not mean that people have to stop working, and even though the costs are manageable.
Even the author is unable to come up with a very convincing rationale, beyond saying that reforms are needed to “convey the message that it is no longer appropriate for public policy to include provisions that could distort people’s life course decisions in a way that favours people spending shorter periods of their lives in work.” (Note the last part of the sentence is contradicted in his own analysis in point 2. above.)
But what is the cost of “conveying a message”? Hicks concedes in passing that not all workers remain healthy well into old age, and that many of us still work in very physically demanding jobs and will not as older workers have skills which employers want. He hints vaguely at future adjustments to public pensions to deal with these problems.
But, he says, we need to wave a stick even when it is not needed.
Who’s a bigger drag on Canada’s future? The old or the young?
Posted by Armine Yalnizyan under economic growth, economic risk, employment, labour adjustment, population aging, skill shortages, temporary workers, Uncategorized, unemployment, young workers.
April 11th, 2012
Comments: 4
This is my latest column for Canadian Business magazine.
Giorgio, a hard-working, smart-as-a-whip University of Toronto student, asked me a great question after a recent guest lecture: What if the biggest challenge facing Canadian businesses and governments in the coming years isn’t an aging society but the economic and fiscal drag of hundreds of thousands of young people who can’t find meaningful work?
Like many young adults, Giorgio and his friends plunged into graduate school at the recession’s start to duck unemployment, up-skilling to boost their chances of cracking a market littered with experienced boomers. Lucky Giorgio got a job in construction for the coming summer. It ’s not h is intended career, but it will help pay off student debts. His friends are not so fortunate. Most are doing unpaid internships to enhance resumés while relying on barista and other minimum-wage work to keep on keeping on. None of them see anything but short-term jobs, at best, in their future.
The odds of developing a career and a full-fledged adult life are getting longer for this crowd. Three years ago, the global economic crisis triggered the worst nine-month spate of job-shedding in Canada since the Great Depression. And while overall numbers have rebounded, young people are locked out of the recovery.
Canadians under 25 lost just over half of all the jobs that evaporated between October 2008 and July 2009. Since then, the head count of job holders has surpassed the pre-recession level by 1%—but not among young people. There are 25,000 fewer of them working paid jobs today than in July 2009.
They haven’t given up. At last count, 414,000 young adults were looking for work. And, in truth, there is always more unemployment among youth than in the rest of the labour force. They’re still figuring out how to sell themselves to prospective employers, and are likelier than others to leave a job in search of a better one. But at 14.7%, the unemployment rate for those under 25 is now double the national rate—a first since StatsCan began annually tracking the data in 1976.
Ironically, this growth in unemployment stems largely from the type of jobs that have been created since the downturn: four out of five are temporary. The vast majority of the new permanent jobs, meanwhile, have gone to workers aged 55 and older, partly because employers get more immediate value out of staff with experience.
So what did the kids do? They went back to school. About 150,000 people under 25 left the labour market between the fall of 2008 and 2009—a time during which post-secondary institutions registered almost as many new students, the single biggest increase in enrolment (save for Ontario’s double-cohort year).
Young people are trying every trick in the book, but talking with Giorgio and others reveals a quiet anxiety. It’s echoed in a recent Ekos poll, which found that among those younger than 42—the median age of Canada’s population—59% believe the quality of life for the next generation will be worse than that enjoyed by today’s. Some are calling it the end of progress.
This erosion of confidence is neither inevitable nor necessarily self-fulfilling. In 25 years, the boomers who want to work or have to work will have vacated the job market, and Giorgio’s age group may see their survival instincts and sheer ingenuity rewarded with previously denied prosperity.
But any smart business can see what’s around the corner. Today, the world is chasing capital, trying to get investors to put money into their idea, their community. Tomorrow, the global hunt will be for labour. Emerging and developed economies alike are facing aging workforces and shrinking pools of skilled and unskilled labour. Attracting youth and cultivating new talent now could put your company ahead in the upcoming competition for people. That’s how you ensure your markets and profits grow, not shrink. But i f we wait too long to invest in giving the next generation a fair try, instead of a grey tsunami we may be facing the revenge of the temps.
Katimavik
Posted by Andrew Jackson under federal budget, young workers.
April 10th, 2012
Comments: 5
I am sure readers of this blog are not unsympathetic to the case for a government supported program which, at a time of very high youth unemployment, annually enables some 1500 young people to volunteer to work in not for profit sponsored community development projects across the country. Participants- aged 17 to 21 – are usually engaged in two projects outside their home community over six months.
The government claims that the program is too costly. But Katimavik’s numbers show that their $16 Million annual budget generates some $14 Million per year in community benefits, and that is before taking any account of benefits for the participants themselves. They gain valuable work and civic engagement experience and a real sense of our very diverse country. The cost per participant is only $77 per day, and the administrative overhead is just 8%.
It turns out that the federal government is not only reneging on their multi year commitment, they are also pulling the rug from under the nearly 600 incoming volunteers who were expecting to begin their 6-month program in July 2012. Most will have great difficulty filling in a big gap in a planned break between high school and post secondary education.
SK Budget: Where’s the Inter-governmental Love?
Posted by Erin Weir under cities, media, Saskatchewan, taxation, TILMA.
April 7th, 2012
Comments: none
A hallmark of Brad Wall’s premiership has been cosy relations with municipal governments and the two westernmost provincial governments. Since taking office, the Sask. Party has been throwing money at municipalities. It pledged not to sign the Trade, Investment and Labour Mobility Agreement with Alberta and BC, but then did so through the New West Partnership.
A couple of tax changes from the recent Saskatchewan budget are worth examining through this prism of intergovernmental relations. Much has already been written about Wall’s bizarre decision to axe the Film Employment Tax Credit and partial climb-down.
Despite the inconsistency of zeroing in on this one relatively inexpensive measure amid the province’s myriad of other tax expenditures and business subsidies, the Sask. Party had a point. The main rationale for continuing the Film Employment Tax Credit is that every other competing jurisdiction offers similar credits.
The Sask. Party may well be correct that the world would be a better place if all jurisdictions dropped their subsidies and film locations were chosen based on factors other than tax preferences. That’s hardly an argument for unilateral disarmament, but it could have been an argument for intergovernmental cooperation. Read more »
Job Gains in March: An Aberration?
Posted by Andrew Jackson under labour market, StatCan.
April 6th, 2012
Comments: 7
Coming after several months of flat or falling job growth, the large jump in employment in March – up 82,300 – has prompted concerns that it could be a statistical aberration, due to sampling error rather than a real change.
This could indeed be the case. However, the Standard Error for the national estimate of employment is 28,600 – much lower than the total increase.
I thought the jump could be due to some combination of normal seasonal adjustment and an exceptionally warm March in much of the country, but the non-seasonally-adjusted jump in employment was 84,000.
So it seems chances are that we did indeed see a pretty big jump in jobs in March. Whether it lasts is an entirely different question.
Real Unemployment Rate = 11.3%
Posted by Erin Weir under labour market, media, StatCan, unemployment.
April 5th, 2012
Comments: 5
Statistics Canada reported significant employment growth today for the first time in six months. As Andrew has already noted, welcome strength in March does not make up for the five preceding months of stagnation.
Compared to September 2011, full-time employment has increased by 21,900 while Canada’s labour force and population (age 15+) have expanded by 59,100 and 151,000 respectively. Including the March bounce, Canadian employers have not been creating nearly enough jobs to keep pace with workforce and population growth.
Even focusing just on the last month, there was an important regional discrepancy. While employment growth in central Canada drove the national totals, the opposite occurred on both coasts. Employment decreased in half of Canada’s provinces in March.
The official unemployment rate’s drop to 7.2% will undoubtedly garner much attention. But with CANSIM data now freely available, it’s worth emphasizing that Statistics Canada calculates several unemployment rates. The R8 rate, which includes discouraged job seekers, people waiting for jobs and a portion of the part-time workers who cannot get full-time jobs, stood at 11.3% in March.
UPDATE (April 8): Quoted in yesterday’s Hamilton Spectator (page T6)
A Good Month Leaves Us Well Short of a Recovery
Posted by Andrew Jackson under labour market.
April 5th, 2012
Comments: 2
Today’s job numbers for March are much stronger than they have been since last September. Job creation was very strong – up 82,300 in the month, with 70,000 of those positions being full-time. The national unemployment rate fell from 7.4% to 7.2%, the level it was at last September. The youth unemployment rate also fell sharply, from 14.7% to 13.9%.
The new jobs were concentrated in hard-hit central Canada, and included a modest job gain of 11,800 in manufacturing.
Jobs were divided between private sector employees (up 42,600); self-employment (up 18,800); and public sector employees (up 20,900.)
While all of this is welcome news, the employment rate (the proportion of the working age population holding a job) has still not recovered to the level of last September (61.8% compared to 62.0%) and still remains well below the pre 2008 recession level of 63.6%. On top of the 1.4 million unemployed, many Canadians have dropped out of the workforce.
Another sign of a still soft job market is that the year over year increase in average hourly wages is, at 2.5%, just matching the rate of inflation.
The job numbers for March also come before we begin to feel the impacts of the austerity Budgets being introduced by the federal and many provincial governments.
In short, March was a good month, but it is far from clear that we will see the sustained improvement in the job market needed to get us back to where we were before the 2008 recession.
Bear Safety Tips for Bob Rae
Posted by Erin Weir under liberals, NDP.
April 4th, 2012
Comments: 5
Liberal leader Bob Rae seems intent on provoking a Grizzly attack. I have slightly adapted some internet advice for him:
- Play dead! (The latest polling results should make that relatively easy.)
- Lie face down on the ground with your hands around the back of your neck.
- Stay silent and try not to move.
- Keep your legs spread apart and leave your pack on to protect your back (from Justin Trudeau).
- Once the bear backs off, stay quiet and still for as long as possible. Bears will often watch from a distance and come back if they see movement.
Federal Job Cuts…the Real Numbers
Posted by David Macdonald under budgets, employment, federal budget, fiscal policy, public infrastructure, public services.
April 4th, 2012
Comments: 1
Andrew Jackson has started off this discussion with his post today looking at the job impacts of federal cuts. I wanted to add my own two sense and some calculations that I’ve whipped up.
Thankfully the federal budget has started to fill in some of the details of its latest round of cuts. In particular, it now estimates 19,200 positions lost due to its latest round of cuts (Federal Budget 2012, pg 221). Although it is nice to have an initial estimate, this hardly show the full picture as it excludes the other two rounds of cuts that overlap on the 2012 version.
The Federal Budget Impact on Jobs
Posted by Andrew Jackson under federal budget, labour market.
April 4th, 2012
Comments: none
The Budget estimate that a new round of cuts will eliminate up to 19,200 jobs has been widely cited as fact, but it cannot be taken at face value as argued in an analysis released by the Public Service Alliance of Canada. An extract follows:
The government claims the $5.2 billion in spending cuts will mean the loss of 19,200 public service jobs. It says 7,000 of those will be dealt with through attrition. But how does the government know how many people will actually retire? Given the high household debt levels and uncertainty felt by most public service workers today, it’s likely many will choose to work longer, not retire earlier. That could mean many more lay-offs than the 12,200 the government claims to be anticipating. Read more »
