Flaherty’s Made-Up Numbers

The following Canadian Press story is an hilariously accurate report of what happened on Wednesday when the Finance Minister appeared before a Senate committee to pontificate about supposed interprovincial barriers:

Flaherty’s remarks came shortly before a senior Finance Department official told a Senate committee that interprovincial trade rules cost the country about one quarter of one per cent of its gross domestic product.

But Denis Gauthier, the assistant deputy minister of economic development and corporate finance, conceded the department has not recently done any economic modelling to determine the precise cost of the internal trade barriers.

“There’s been so many studies done, and the numbers you’ve heard, you know, between a quarter to three quarters of one per cent of GDP is in the ballpark,” Gauthier said.

“All of the studies point in the same direction,” Flaherty added.

When pressed by Liberal Senator Wilfred Moore, however, Gauthier said the loss stemming from the provincial trade barriers costs the Canadian economy about $3 billion each year.

One is left wondering whether the Department of Finance has any evidence on this matter. Gauthier also said, “Recent estimates from Industry Canada and elsewhere in the government indicate the cost of barriers around a quarter of one percent of GDP,” which would equal about $3 billion.

If anyone can find these “recent estimates,” please post a link as a comment below. The only thing that I can think of are papers prepared by Grady and Macmillan for Industry Canada’s internal trade conference. These papers outlined previous estimates, but did not endeavour to provide new ones.

Quebec’s ban on margarine coloured like butter is one of a very few bonafide inter-provincial barriers. As Marc notes, vegetable-oil lobbyists claim that this rule costs about 0.2% of their industry’s revenues. Of course, the dairy industry’s gains would offset at least part of this loss. Since there are no comparable barriers in most sectors, it is highly doubtful that such barriers cost 0.25% of GDP. As noted previously, the Macdonald Commission’s estimate was no more than 0.05% of GDP.

The only defence of Flaherty’s numbers is that they are less ridiculous than the Conference Board’s numbers and Premier Stelmach’s numbers:

Alberta Premier Ed Stelmach has estimated interprovincial trade issues cost the Canadian economy about $14 billion a year.

2 comments

  • I was originally ambivalent about B.Mulroney’s leadership, reasoning Free Trade made up for racking up debt (despite boomer demographics in their prime). Then I learned Canada’s trade with other nations has increased at a rate equal to its North American trading partners. Perhaps Free Trade kept open markets that otherwise would have been closed; a hidden benefit? But the Americans have dumped foreign organisms into Manitoba’s waterways to save the $30 million cost and political fight of dumping ND foreign organisms into MN. Mad Cow and softwood lumber demostrate free trade is an illusion. NAFTA’s primary benefit is it lifted many Mexican border provinces out of poverty at a quicker rate than would otherwise have occured. Maybe there is a corrallory with Canadian provinces with many immigrants or large Native populations, but this point hasn’t even been recognized in this debate.
    I originally thought removing inter-provincial trade barriers would help cushion Canada from USA import contraction, but learned this summer there really aren’t any barriers, save for some employment accreditation issues that can be dealt with separately.

    From what I can tell this issue is a distraction from the need of the world to begin to consider punitive tarriffs against North America for their regressive environmental policies. Much as North America helped rescue Europe in WWII from pre-20th century modes of thinking, North America is stuck in a cold war bunker mentality incapable of meeting 21st century challenges. Liberals, NDPers, Democrats appear incapable of attaining power; the world needs to rescue North America by drafting up plans for punitive trade sactions. Canadian and American economists should be at the forefront of this 1990’s CIS-style forced economic contraction. Likewise for any newly developed (say, 5-digit GDPs or so, or a fractional measure of middle class denoting incremental low footprint measures) nations that don’t respect mid-21st civilians lives (and economic potentials).
    If Canada and the United States can’t election progressive leaders this decade (25 months left), if the other nations of the world can’t draft a trade war next decade, a superior 2020’s course of action than USA/Canada as global parasites would be a “forced” industrial contraction; basically what Osama advocates but for secular reasons against specific targets.

    The populations of the interior BC, Alberta, Saskatchewan, small town Canada and the USA outside of NY/California are electing governments that are passively responsible for genocide against Africa. It is on the same moral ground as a forced starvation. I don’t want to contribute intellectually to a world in the 2020’s where the morally correct position is to learn how to computer program virii that sabotage North American power grids…
    Or we could elect Hillary and Dion in 2008.

  • Better qualify some of my above remarks lest I be grouped in with eco-radicalists claiming we shouldn’t travel on planes (as opposed to a fuel-surcharge), or that unsentient trees have some value in their own right.

    North America is in the position of the Soviets about two decades before they starved the Ukraines 80 years ago. Hundreds of thousands of Iraqi’s dead and Millions displaced, are 1000X less than what will occur in the mid-21st Century if North America doesn’t show developing nations how to act once you get cash/quality-of-living. Kill all military age males in Fallujah?! If the morality of this issue is still being debated in the USA how can the morality of a missed monsoon killing all males/females in Eastern Africa be addressed?
    I don’t even get Canadian politics. We mostly all agree the environment is an issue yet choose leaders based on personality or some other subliminal metric.

    If rainfall patterns in largely populated regions or large agriculture heartlands are altered, those who knowingly alter them are terrorists. The easiest chain of events I can see that avoid the book of Revelations is for American to elect a democrat and Canadians to get over that Dion resembles Kermit-the-Frog and elect him (or a messy NDP-led coalition government). Then North America can tell China as they develop a middle class that their middle class will pay the eco-piper, then India will fall in line, then African can *live* and program all the consumer crap we’ll need to live like the Jetsons.

    I just read a National Post article that estimated the (aggregate 21st century I assume) cost of global warming at $15 trillion in a do nothing scenario. I doubt that would even cover the city of Lagos. The world now is worth $55 trillion costed, and about 10X that uncosted. In 2100, the world not under the threat of global warming will be worth $5 quadrillion costed, and about 10X that (the metal content of one small asteriod for instance) uncosted. Global Warming will cost tens of quadrillions of dollars over the 21st century if the “leadership” positions of GW.Bush and S.Harper are adopted. Killing a couple hundred thousand Iraqis is forgivable (apparently) but not hundreds of millions of Africans, and what their econmic output could give a hyperglobalized world.

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