Monday, April 28, 2008

on the road

I'll be in Canmore for the next week, and for the week after that in Indiana. I have some friends in Bloomington. I may also check out nearby Cincinnati, Ohio and Louisville, Kentucky. Indiana should be interesting politically since I believe that Indiana's primary will be held while I'm there. If I do check out an Obama rally I'll give you my impressions, of course, but posting may be limited for the next two weeks.


I had a booking number for the Indianapolis flight but it got canceled for failing to "confirm the taxes" with a sufficiently timely phone call. So I shuffled around the discard pile for a short notice trip others had left unfilled and found Albuquerque, New Mexico. I'll get off the plane in Denver and bus my way on down to New Mexico with possible stops in Taos and Santa Fe. I'm then off to Europe on Friday, May 16. I expect to be back in Alberta in August, earlier if some Calgary hedge fund calls me in for an interview (but do they exist? I'm job hunting more in London because I'm doubtful...)

Friday, April 25, 2008

Alberta govt says it's "ill-suited to think about investment strategies"

the Opposition Liberals continued to hammer on the fact that almost every other major oil jurisdiction has a long-term savings plan in place. Norway alone has saved more than $300 billion.
In the meantime, said Liberal Leader Kevin Taft, the Alberta government has spent more than $200 billion over the last three decades, and the balance of the Heritage Savings Trust Fund - about $16 billion - is lower when adjusted for inflation than it was 20 years ago.
"We are liquidating the enormous wealth of this province as quickly as is humanly possible. This is a dangerous, dangerous pattern and it's been going on for many years in this province," said Taft.
That drew snickers in the house from Energy Minister Mel Knight...

I'm extremely frustrated with the direction of my home province. I left Ottawa and returned to Alberta thinking that smaller government sold better out here and instead I find one of the biggest expansions in the size of government in the developed world well underway. It's left to a party called "Liberal" to call for fiscal discipline from a Finance Minister who describes herself on Facebook as "Very Conservative".

And an election merely reinforces what's going on.

From the Edmonton Journal:

The finance minister also reasoned in her speech that MLAs are ill-suited to think about investment strategies because they no longer read stock-market reports out of personal interest. ... "We're less likely to be current with financial nuance than you are," Evans told the breakfast crowd

Right. That's we why elect you. For what you don't know. The expert report from Jack Mintz is gathering dust on her desk while Evans says this. "Ah, but the Tories are listening because they are calling for public consultations on savings policy." Please. These consultations are the one of the most cynical exercises I have ever encountered. The Tories know full well that they will be able to use these consultations to argue that they have a mandate from "ordinary Albertans" to spend and to accordingly shelve Mintz' report, along the with expert advice of every other economist and financial professional out there.

When a government is utterly shameless with respect to the extend to which they are willing to pander to populism, it is extremely difficult to counter unless citizens are sufficiently engaged to see the pig behind the lipstick. In central Alberta the idea that "Ed Stelmach" is one of us sold like hot cakes on the doorsteps. The long run supply curve? No time and no interest for such abstruse matters. The Tories aren't interested either, which is why they are going through the charade of soliciting the opinion of the man in the street whose opinion this poll driven government is perfectly aware of already.

Thursday, April 24, 2008

Wikipedia: I hardly knew ye

One of Wikipedia's policies is that "Courtesy blanking" may be employed if something "may potentially cause ... emotional distress".

Facts can be potentially distressing, certainly. And Wikipedia contains a lot of facts, most of them true. Perhaps Wikipedia will one day "blank" itself as a "courtesy" to humanity, which has been plagued throughout its existence by distressing facts! Now if we could just go one step further and "blank" all of human knowledge, after all... ignorance is bliss, n'est-ce pas?

Wikipedia first started down the road to ruin when in 2006 a "biographies of living persons" policy was brought in that said "do no harm". Wikipedia already had policies that called for neutrality, notability, and citations to reliable sources. What's wrong with a neutral article, containing notable facts cited to reliable sources? Plenty, apparently, if such an article creates "distress".

Google "Daniel Brandt" and you'll get almost 50 000 hits. But there is no "Daniel Brandt" article. Why? Because the subject of the article wanted his article deleted (as an aside, part of the reason Wiki admins caved here was because they figured Brandt would dial down his bizarre anti-Wikipedia campaign).

How did Wikipedia get to the point where the truth gets deleted if someone can't handle it? I believe it's because Wiki editors applied a general principle by which many wish to live their lives, namely, "minimize the distress of one's fellows" to the specific job of editing an encyclopedia. In a sense, it's thus an inevitable consequence of "anyone can edit".

Tuesday, April 22, 2008

"Alberta spending spree continues"

Says the Globe and Mail.

NDP leader Brian Mason said it best on the radio though, "This proves the NDP actually won the election"!

Alberta's per capita spending is now THREE TIMES the average level of other provinces, according to the Edmonton Journal.

From the CBC:
Only $279 million is to be socked away in savings, a far cry from the $3 billion to $4 billion groups such as the Alberta Chambers of Commerce have been advocating. "The provincial government is going to hit the wall," said Ken Kolby, president and CEO of the group. ... But Treasury Board President Lloyd Snelgrove questioned whether Albertans are ready to accept a cut in government spending."

From the Calgary Herald:
"Overall, we're disappointed quite frankly with the level of the spending increase," said Calgary Chamber of Commerce chair Brian Hahn. ... We're pretty disappointed," agreed Canadian Federation of Independent Business director of provincial affairs for Alberta Danielle Smith

This is the best blog I've found if you are interested in wonkish number cruncing for the 2008 US elections.

538, of course is the number of votes by which Bush took Florida (and the White House), in 2000.

John McIntyre's view of tonight's Pennsylvania race:

--Obama wins: Race is totally over.
--Clinton wins by 5 or less: Race is effectively over.
--Clinton wins by 6-9: Status quo, which favors the front runner Obama, particularly as the clock winds down.
--Clinton wins by 10-13: Clinton remains the underdog, but her odds of being the nominee will be considerably higher than the conventional wisdom in the media.
--Clinton wins by 14+: Totally different race, as Clinton will be on a path to claim a popular vote win that will give her every bit as much of an argument as the legitimate "winner". In this scenario anything could ultimately happen, including neither Clinton nor Obama becoming the eventual nominee

Monday, April 21, 2008

the missing report

Kudos to CBC for actually asking where this thing is:

The government is not ready to release that report yet, said [Alberta Finance Minster] Evans.
"I expect to release it in the future, but I'm not saying just quite when. I've met with Mr. Mintz and it's going to be forthcoming but not for a while."

Gerry Nicholls on federal Tories

Yes sir, there is room for everybody in Mr. Harper's Red Populist Nationalist Alliance – everybody, that is, but conservatives who believe in the equality of citizens and want more freedom and less government. Sadly, these Canadians no longer have a political home.

There is an alternative in Alberta (Wildrose Alliance, anyone?), but if I learned anything from running as a candidate myself earlier this year, it's that there really isn't much a market for "non-populist" fiscal conservatism per se. There are plenty of pundits who support that, but it just doesn't sell on the door steps. Even Link Byfield was telling me our Wildrose Alliance party should look at more populist policies if we expect to get very far. I disagree with that; - my first call during the provincial campaign was from a constituent in my riding who worked as a lawyer for the province's most prestigious boutique tax law firm. He felt my candidacy filled a void.

Even if we can't win, if we have what the economic experts agree are the best, pro-growth policies, the media will push to get our talking points into what I've been calling the national conversation.

Friday, April 18, 2008

the real issue with ABC News' debate moderators

What made non-partisans uncomfortable was not the fact Obama's questioners were not lobbing him soft balls over the plate that he could knock out of the park. The candidate will have enough opportunities to pitch to himself later.

What made them unconfortable is the idea that something like the connection between terrorist-turned-teacher Bill Ayers and Barack Obama is your typical blogosphere conspiracy theory that should have been checked, or at least thoroughly patted down, at the gate of the MSM.

The problem isn't that right wingers broke into the citadel of the mass market. It's that barbarian bloggers broke into the citadel. We should be making common cause to defend it regardless of our ideologies because otherwise our national conversation will deteriorate into a cacophany.

It's somewhat like letting an Internet-only blogger into the group of syndicated pundits. It's a decision that will be rightly scrutinized regardless of whether the blogger is right wing or left wing. All men were created equal but not all punditry. Paul Wells brought me a lot of traffic when he recently linked to me in the body of one of his posts. I like to think that's because he wasn't afraid to lift my post up to the level of posts by syndicated columnists. Note that not everyone with a reaction to Wells gets their reaction out there; - Wells doesn't have comments. Which is as it should be in my opinion because I don't think it serves us to see someone like Wells goaded into leaving the citadel to engage rude Vandals in the swamps. Why? Because MOST people aren't watching out there and understandably so.

Both left wingers and right wingers will approve of the idea of sending a someone on the team they are supporting down to the minors when it's understood that you can't have too many men on the ice. People want to see the big league action and that means not everyone can play.

We are all entitled to a soapbox but some voices deserve bigger soapboxes than others. Elitist? Yes. But the secret to democracy is protecting it from the daily mob. I'm not calling for a hereditary aristocracy here but a meritocracy. Old pundits whose eloquence or perspicacity has been eclipsed by some new wit on the scene need to be shuffled off the stage. To a large extent this happens naturally on the exeunt side as the audience chooses to move on. But the entrance side generally involves a conscious decision by the proprietor of the platform (i.e. the MSM) and it is healthy to have those decisions second guessed.

Thursday, April 17, 2008

why you need economists

You can see why Marc Ambinder is a good pundit with his post-mortem on the Obama - Clinton debate:
Keeping the score card, there's no way Obama could fared worse. Nearly 45 minutes of relentless political scrutiny from the ABC anchors and from Hillary Clinton, followed by an issues-and-answers session in which his anger carried over and sort of neutered him. But Hillary Clinton has a Reverse-Teflon problem: her negatives are up, and when she's perceived as the attacker, the attacks never seem to settle on Obama and always seem to boomerang back on her. So it would be unwise to declare that Hillary "won" the debate in the dynamic sense just yet. (How much money will Obama raise off this debate? $3 million? $4 million?)
A lot of stuff that Obama doesn't [want] Pennsylvanians to think about were the subject of fairly detailed questions. Obama's supporters are already blaming the "establishment" -- that is, the powerful institution of the mainstream media -- for the tone of the debate. This sets up a blowback scenario wherein his supporters will rally to his defense and lash out at the media very loudly. ...
A fine analysis. But look at his live blog wire:
0908 [PM EST]: Charlie asks Obama about the capital gains tax and its inverse relationship to revenue. "Why raise it at all?" Obama: "I would look at raising the capital gains tax for the purposes of fairness." So -- doesn't matter if it brings in more money to the Treasury, he's going to raise the tax for reasons of distributive justice?

Ambinder makes a perfectly sound point. But it needs to be noted here that ABC News moderator Charlie Gibson is repeating a Republican talking point that has been debunked. A capital gains tax will not bring in MORE money to the Treasury. Rather, it will partly pay for itself, and because it is on capital income a good part will pay for itself. But that's still just a part: there is no "inverse relationship".

In any case, this was still an example of Obama's weakness on policy. He's putting liberal ideology ahead of what economists say is efficient (although McCain's gas tax cut idea is even worse).

One of the best articles I've seen on Obamania generally is this one from Rolling Stone, published in February.

Tuesday, April 15, 2008

Tory MLA on the "US Slowdown"

" In the US there is a market correction going on that has been amplified by the sub-prime mortgage mistake. People who couldn't afford a house were given mortgages at below prime..."

As Wikipedia explains, "Subprime lending (also known as B-paper, near-prime, or second chance lending) is lending at a higher rate than the prime rate. ... A subprime loan is offered at a rate higher than A-paper loans due to the perceived increased risk." What's "less than prime" is the credit of the borrower, not the rate!

"they have a devalued/devaluing dollar that is creating subsector inflation (all goods imported will grow more expensive..."

This has the causal relationship backwards. As noted by the Bank of Canada "the value of the Canadian dollar is determined by economic forces (fundamentals), such as the rate of inflation and the level of interest rates in Canada..." not the other way around (aside: that BoC webpage contemplates intervention, but my former boss at the Finance Dept and fellow Edmontonian Mark Carney says that the Bank won't be intervening while he is Governor). I appreciate that the reference here is to "subsector" inflation but I don't see what the problem is if it is necessarily accompanied by "subsector" deflation such that you don't have macro inflation, period.

"the US has a national debt that is growing rapidly ... (and that in turn leads to further depreciation against world currencies.)"

Of relevance for currency level is the fact that the United States has a massive current account deficit. The vast majority of that deficit is accounted for by the merchandise trade deficit, although the flow of greenbacks out of the US is increased by unilateral transfers (US foreign aid or immigrants in the US who send dollars back to their families) and factor income (foreigners who receive interest, dividends, or rent from the assets they own in the US).

As long as foreigners continue to "finance" the current account deficit, the dollar's value will remain stable. Foreigners can use the dollars that arise from their current account surpluses to purchase US assets, whether it be property and plant on US soil (foreign direct investment or FDI), shares in US firms (portfolio investment), or US Treasuries. China and Japan in particular have bought enormous amounts of US government securities.

The mirror image of the massive US current account deficit is thus the massive US capital account surplus.

To what extent does increasing US national debt dissuade foreigners from continuing to finance the current account deficit? One study suggests that a $1.00 reduction in the federal budget deficit would cause the current account deficit to decline less than $0.20. Also, the US current account deficit expanded by about $300 billion between 1996 and 2000, a period during which the US federal budget was in surplus. See also "How I Learned to Stop Worrying and Love the Current Account Deficit".

Besides, if you have a project that will return 10 cents on an invested dollar every period, why stop investing with just the money you have on hand, if someone is willing to lend you more for just 2 cents interest on every additional dollar lent to you? This is to say, the expanding US debt might be the rationally responding variable to international investors who are falling over themselves to finance the US. Indeed, no less a personage than Ben Bernanke says he wishes to:
... take issue with the common view that the recent deterioration in the U.S. current account primarily reflects economic policies and other economic developments within the United States itself.

Non-Americans aren't just the drivers on the capital account, either. If the Chinese weren't happy with their current account situation vis-a-vis the US they'd let their currency float.

Note that while one of Bernanke's predecessors, Paul Volcker, points a worried finger at the fact that "What holds it all together is a massive and growing flow of capital from abroad, running to more than $2 billion every working day, and growing," he acknowledges that "As a nation we don't consciously borrow or beg. We aren't even offering attractive interest rates". In any case, "Bernanke" has declared "Paul Volcker an enemy combatant to the economy" and as for Greenspan, well, evidently he isn't especially worried about the current account deficit.

I certainly agree that spending should slow and the net asset position be improved. But the declining US dollar isn't the US' problem. Rather, it's the solution! Current external imbalances can be unwound either by future trade surpluses or by future favorable returns on the net foreign asset position of the US. A declining greenback increases the dollar value of US assets currently denominated in foreign currencies and helps to increase net exports as well. This study finds that "a 10% depreciation of the dollar represents, ceteris paribus, a transfer of around 5.9% of US GDP from the rest of the world to the US."

"... slow spending, slow borrowing, and encourage savings and debt pay down... [otherwise] ... the only way it will turn around at that point is for interest rates to rise to 15 - 20% for close to a decade..."

It's remarkable that a member of the Alberta government can wag the finger about slowing spending and improving the net asset position with no apparent sense of irony.

As I observed during the campaign: "most absurd of all is [the premier's] contention that a vote for anyone other than Ed is going to lead to '22% interest rates'."

Apparently our MLA here has been or is a member of the Standing Committee on the Alberta Heritage Savings Trust Fund. As I noted a month ago, Jack Mintz told the Calgary Herald on Jan 21 that the Alberta government "needs much more fiscal discipline" and "[t]he most important message that will come out of our report will be why Albertans should save." Why is the government continuing to sit on this report? There was ZERO indication in Tuesday's Throne Speech that the Alberta PCs will be giving any consideration to taking the medicine one of their number is prescribing for another government.

At bottom, I entirely agree with the thesis that government should be moving out the long run supply curve instead of juicing short term demand. But at least the US is contemplating more fiscal stimulus when the economy is far from running at full tilt. If the Alberta government wants to lecture anyone about stoking inflation, they just need to find a mirror!

the big tent of Alberta PCs on Facebook

Battle River - Wainwright MLA Doug Griffiths and I apparently both graduated from the U of A in 1996 with degrees in Philosophy; a major for me, an Honours for him. Whether we shared classes or not, I don't recall him.

Of interest here is Mr Griffiths' Facebook page. The honourable member says he is politically "moderate". Meanwhile, Finance Minister Iris Evans calls herself "very conservative" and Edmonton lawyer and blogger Ken "Congratulations for this [March 3] victory are also due to the entire Stelmach family – both personal and political. Well done and thank you" Chapman is comfortably over on the left side of the spectrum according to the "Political Compass" on his Facebook page. All of these people are heavily involved with the PC Party.

As for yours truly, in the Facebook world I'm simply "conservative" (although I added the "World's Smallest Political Quiz" app to my page which plots me in the libertarian camp).

In any case, what I really intend to discuss here is the note Griffiths posted on Sunday regarding the "US Slowdown", which AlbertaTory has called attention to. But I'll address that in a second post.

Al Gore's running mate "hesitates" to call Obama a Marxist

The 2000 Democratic nominee for Vice-President, Joe Lieberman, nonetheless believes that it is a "good question":
he’s got some positions that are far to the left of me and I think mainstream America


Sunday, April 13, 2008

Obama in Wikipedia: "staunch liberal" no more

Looking at Obama's Wikipedia page from late July 2004 (when he first burst onto the national and international scene with his speech at the Democratic Convention), essentially all it says about his politics is that he is "regarded as a staunch liberal".

Fast forward to today and the word "liberal" appears just once, in an Obama quote, and with the words "not a" in front of it. Never mind that the National Journal identified Obama's 2007 voting record as the most "liberal" in the US Senate.

Now one cannot just go and grab any old version of a Wiki article and call it meaningful, since it could be idiosyncratic to the last edit. But in this case the "staunch liberal" description persisted for AT LEAST 1500 edits and more than two years (I gave up looking for the time of its removal after that point).

What sort of issues do I have with the fact Obama told a well heeled San Francisco audience that downscale Americans turn to guns and God and "antipathy to people that aren't like them" for visceral reasons? Not many, and not just because Obama added "anti-trade sentiment" to his list. When I was running for office myself back in February I said ideologues don't cause me as much worry as their more flexible counterparts because it least they are in politics for a reason. A gaffe, as defined by Michael Kinsley, "is a politician telling the truth, or, in this instance, saying what he really thinks." Clinton doesn't make gaffes and that is precisely why I, and many others, have long since curbed their enthusiasm for her.

Friday, April 11, 2008

federal Tories on wrong side of sound policy

The Conservatives now have the dubious distinction of being the first Canadian goverment to use the Investment Canada Act to block an investment in the country.

From a MDA employee:

Radarsat2 was developed in part when MDA was a wholly owned subsidiary of Orbital Sciences, a US aerospace company. ... the divisions MDA is proposing to sell experienced their greatest revenue and staff growth while American owned. Those saying that ATK will move the divisions to the US have no idea ....

...ITAR restrictions [are] severely limiting the number of jobs that Canadian owned firms can participate in. The US space budget currently comprises 81% of the world space budget. ... No additional international space projects will come to Canada unless the Canadian government invests in them, and it doesn't seem like this is a priority.

... MDA has attempted various strategies to continue working in the US market while based in Canada. Among other things, they bought US companies in the robotics and aerospace sector, and these purchases were not blocked by the US government. Over time, however, MDA concluded that the only way for these divisions to continue and grow is to have an American parent company. ... MDA is slowly being shut out of the US market and the Canadian goverment is not making plans for the future. Blocking the sale will very likely lead to the loss of these divisions and their capabilities anyway as they run out of work.

Someone also claiming to be an employee says "the ground station that controls this satelite is still under CSA's roof in Montreal Quebec and not under MDA's roof".

According to MDA CEO Dan Friedmann:

There is not enough business in Canada under any government or any budget or any plan to support a company of our size. It's just not possible. We have to export and we have to export to the United States.

On the National last night, Andrew Coyne noted that this proves the Liberals "have no monopoly on craven capitulations". It's "knee-jerk nationalism" and the national security threat is "complete mythology". Kudos to Luc Schulz for being a Blogging Tory who dares to speak out about this. There's no doubt what the polls say, however: looking at the Globe and Mail's online poll at lunchtime Friday, it's 94% to 6% in favour of the Tory decision on close to 18 000 votes.

Terence Corcoran notes:

We can only assume that when Mr. Prentice adds up the net benefit to Canada, he is taking into account the $1.3-billion in value that Alliant will transfer from Minnesota to the largely Canadian shareholders of MDA, including many MDA employees. That money would be in the pockets and treasuries of Canadians who could — as MDA certainly plans — invest in other business ventures that bring even greater benefit to Canada's economy. ...
The government of Canada paid $445-million for priority rights to satellite images over a period of many years into the future. It was an advance on the product, not an investment in the satellite. The satellite is a private, commercial satellite service that collects revenues from many governments all over the world. It is, in fact, a great private-sector space success story. MDA developed the satellite, moreover, when it was controlled by another American company, Orbital.

See also Derek DeCloet of the Globe and Mail.

The worst of this is that any space startup in this country has just seen its private financing opportunities go up in smoke. Why? Because no private investor is going to get into something that doesn't have an exit strategy. The Canadian government has signaled that it will block early stage investors from ever getting out by selling to a US firm, and the world's potential acquirers are overwhelmingly US based.

Jack Layton and the left wing Rideau Insitute are pleased. "Governments in Canada have been willing to equate ... the corporate interest with the public interest," says a representative from the latter. "This is the first government in a long time that has been willing to distinguish between the two, and to understand that the interests of Canadians aren't necessarily served by the interests of large corporations, let alone foreign corporations or corporations based in the United States." Take a bow, Tories. When is the next shoe of the anti-corporate agenda going to drop?

Note that "Canada ranks 25th out of 29 [OECD] nations in terms of openness to foreign business." The OECD has, in fact, called on Canada to lift restrictions for its own benefit. UN disapprove of international foreign policy? Bend the ear! OECD disapprove of international economic policy? Ignore them!

The news gets worse, however. Jack Mintz has released a report that says the "federal government should convert its 10-cent-a-litre excise tax on gasoline into a national carbon tax on all fuels that damage the environment". Followers of this blog know that I entirely agree that a carbon tax is the most efficient CO2 mitigation policy. Yet what does Environment Minister John Baird have to say about a national carbon tax? "sounds like a Liberal idea".

Thursday, April 10, 2008

Canadian film and TV tax credits part II

UWO Law prof Sam Trosow quotes Section 120.(12) of Bill C-10 and claims that "Bill C-10 is indeed doing something very new."

A remarkable claim, given that the Liberal government introduced legislation in 2003 that was WORD FOR WORD IDENTICAL.

I might note that the clause "contrary to public policy" is not a new arrival either, given that it appears in CAVCO's Guidelines dated Feb 2004 and in the film credit provincial legislation of FOUR provinces.

Last month Bloc MP Maria Mourani introduced a motion to "remove the reference to public policy ... because this new provision opens the door to unacceptable government censorship". Dr Trosow believes it was "unfortunate that the Liberals did not join with the Bloc and NDP in supporting Ms. Mourani's motion".

Yet even the Canadian Film and Television Production Association does not support "removal". Why? Because the CFTPA believes that there should at least be a reference to the Criminal Code. Thus even the industry's lobby group admits that tax breaks for the production of, say, child pornography would be too much to ask for.

But here's the real gem: if denying this particular tax credit constitutes "censorship", then "news, current events or public affairs programming", which does not qualify for the credit, is being CENSORED EVERY DAY! Where's the outrage?

Canadian film and TV tax credits

Produce something that is obviously offensive to Christians?
Here's your tax credit!

Re-print something that is said to be offensive to Muslims?
Here's your summons to appear before a Human Rights Commission.

Chief Justice Beverley McLachlin's legal philosophy

In a speech in New Zealand, Chief Justice Beverley McLachlin, Alberta's current representative on the Court, asked
what gives the judges the right to set forth constitutional principles capable of invalidating laws and executive acts, when Parliament has not seen fit to set these principles out in writing in the nation’s constitution?
Indeed, inquiring minds would like to know. Justice McLachin suggests an answer:
... it is certainly clear that the post-Second World War period can properly be called the "age of rights." Clearly something is going on here; ... What is going on is the idea that there exist fundamental norms of justice so basic that they form part of the legal structure of governance and must be upheld by the courts, whether or not they find expression in constitutional texts.
Fundamental norms? An interesting choice of term. Why not fundamental truths? Apparently because "contemporary" people understand that to believe in an absolute right and wrong like Kant did is to believe in an obsolete and discredited "theology":
The contemporary concept of unwritten constitutional principles can be seen as a modern reincarnation of the ancient doctrines of natural law. Like those conceptions of justice, the identification of these principles seems to presuppose the existence of some kind of natural order. Unlike them, however, it does not fasten on theology as the source of the unwritten principles that transcend the exercise of state power. It is derived from the history, values and culture of the nation, viewed in its constitutional context.
You see? The sovereignty of Parliament and the written law can and even should be trumped by something more "fundamental", something "deeper":
Lord Cooke ... urged courts not to be afraid to assume their role in protecting certain fundamental principles as essential to the rule of law and the expression of democratic will, even if these "deep rights" were not in written form. ... I am with Lord Cooke ...
but it can't be really, metaphysically, fundamental, because that would imply that there is something transcendent to the judges, like Truth, Justice, or Reason, such that judges would be accountable to that instead of to their own spin on "the history" [of white oppression?], "values" [of the 'progressive' agenda?], "and culture" [of entitlement?].

Having knocked down the authority of Parliament, Truth, and the written law, what's left? To make a twist on a line from the Nightingales:"There ain't nobody here but us [judges]!"

In fairness, Justice McLachlin did acknowledge a role for "reason" and did not reduce everything to sociology. She called attention to Benjamin Berger's question, "Is a just society the fruit of reason or will?" and posited the Courts as the agent of the former and Parliament as the agent of the latter.

But perhaps because this might leave some doubt about her commitment to slaying the dragon of transcendent Truth, she claims that even the crimes of the Nazis are relative, citing one of Spencer Tracy's lines in Judgment at Nuremberg (a fictionalized Hollywood rendering of the trials) to suggest that the Nazis in the docket were offside with just "higher principles as affirmed by Germany’s history, culture and constitution".

What, exactly, did the "Triumph of the Will" and the "Will to Power" affirm? Hitler reportedly told Max Planck that, "If science cannot do without Jews, then we will have to do without science for a few years." I'd suggest that a judge in a culture like that can hardly be faulted for concluding that whether "a just society [is] the fruit of reason or will" is pretty much a settled question for his or her particular nation, a conclusion that would leave no mandate for resisting the government according to Justice McLachlin's account.

I actually see some merit in the Chief Justice's argument. But Posner makes the case far more comprehensively and has spent a career calling for the application of objective principles like maximizing efficiency (see "law and economics") to the adjudication of legal disputes as opposed to leaving it to subjective sociological assessments. Posner has also stepped up to the plate with respect to vigorously addressing and responding to the opposing position as articulated by Ronald Dworkin. The work of scholars like Fred Schauer, who argues for a middle position between situational morality and absolute morality, should also be addressed when the Chief Justice is making the case for a non-deferential, situational approach as strongly as she is.

Wednesday, April 9, 2008

Bastarache resigns

Anyone thinking news of Bastarache's resignation is the signal to man the battlements for the coming ideological war should curb his enthusiasm. There are a number of reasons why there is less of a public debate in Canada over Supreme Court appointments than in the US:

1) the public gets less of a say in Canada. There is little point in lobbying your MP, Senator, or provincial representative when she won't be voting on the matter anyway.

2) we don't have pundits on the level of, say, Eugene Volokh to identify the stakes and make the case one way or the other. James C. Morton is a blogging Canadian law professor, but he seems to be interested in blogging about Paris Hilton, something might have more merit were he actually blogging about our favorite celebutante instead of posting a wire story about her. Morton's first reaction to the Bastarache news? Post a Globe and Mail article, not once, but three times.

3) In Canada we don't have potential nominees to the Supreme Court with the legal mind of, say, a Cardozo or Posner. Were Richard Posner appointed to the USSC, it would excite legal academics across the political spectrum simply because the battle over his nomination would draw the US into one of the most abstract national debates the country has ever had.

In sum, point (1) notes that Supreme Court showdowns are of less consequence in Canada, and points (2) and (3) go to why they make for grander spectacle south of the border.

But perhaps Alberta's own Ted Morton can generate some heat and light here, or at least heat. Morton contends that:

Shortly after Justice LaForest retired in 1997, it came to light that ÉGALE, Canada's leading gay rights advocacy group, had been given the Chretien government's short list of replacements and was actively lobbying for a new judge who would be more supportive of their litigation campaign. A month later, a francophone lawyer from New Brunswick, Michèle Bastarache, was appointed to the Court. Less than a year later (April, 1998), he joined a majority of the Court in the Vriend decision, a major constitutional victory for gay rights and ÉGALE.

Morton may have found a gun here with respect to special interest lobbying, but in my view it is not exactly smoking.

First of all, Bastarache's joining the majority in Vriend is of no particular surprise given that the only judges that didn't were the judge from Alberta and Claire L'Heureux-Dubé, who, as usual, wanted to protest that the majority didn't go far enough and should be joining her out on the far left fringe.

Secondly, the watershed event in the history of gay rights in Canada was the 1995 Egan decision. It was in that case that the Court held that sexual orientation "falls within the ambit of s. 15 protection as being analogous to the enumerated grounds." The "framers" of the Charter had considered the inclusion of sexual orientation and rejected it. For the Court to then read it back in, one can only presume that the only restraint on our Solomons henceforth was their own redoubtable sagacity. Indeed, jurisprudence on same sex issues post-Egan was essentially anticlimatic.

ÉGALE really didn't need to lobby because A) the turning point battle had already been won and B) the legal culture is very "liberal" as it is. When I was at law school, not one of my professors was identifiably conservative, and this was at the University of Alberta. Even in the US, someone like Laurence Tribe (who's called Obama "the best student I ever had", something that goes a long way to explaining Obama's appeal to the educated) has few foils within his own faculty because people like Greg Mankiw ended up giving up on legal academics to become professors in the Economics or Business faculties instead.

The point here is that at least Bastarache had some judicial experience, something that can't be said for Chretien's appointment of Binnie.

What concerns me most about the SCC is that our Chief Justice argues that Parliament's sovereignty should be rejected, not in favour of higher moral principles (that would be "theology"), but higher "norms". And who determines the "norms"? Judges playing sociologists, apparently. I'll deal with this in more detail in a following post.

Tuesday, April 8, 2008

Laffer curve redux

The Laffer curve has evidently returned as a topic du jour amongst the US chattering classes. Arthur B. Laffer (photo at left) himself, you see, has apparently just signed on to the McCain campaign and in late January Laffer penned a WSJ piece where he declared:

Mark my words: If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years...

Note Laffer's claim that it is tax cuts for the rich that generate more tax revenue for the government, not tax cuts generally. It wasn't always so. In their original Reagan-era incarnation the "supply siders" (aka "charlatans and cranks") advocated income tax cuts full stop. But as Robert Solow notes, ""The supply-side argument these days really applies to upper-income people."

Indeed, the extent to which a tax cut "pays for itself" is very dependent on the type of tax and on whom. Greg Mankiw, for instance, estimates that:

a broad-based income tax cut ... would recoup only about a quarter of the lost revenue through supply-side growth effects. For a cut in capital income taxes, the feedback is larger - about 50% - but still well under 100%...

Given that, at bottom, the Laffer curve is simply based on the undisputed premise that a revenue-maximizing tax rate lies somewhere between zero and 100%, Mankiw doesn't exactly deliver the knock-out blow here. Also, those laughing at the Laffer curve who are inclined to trot out Mankiw as one of their heavyweight champions should take note of this speech which suggests Mankiw would be a rather reluctant warrior to say the least.

I would also note that, in response to a comment in a previous post, Jack Mintz's citation of the Laffer curve is in the context of a cut in the corporate rate. The connection to more taxable income is more obvious in the coporate context where one can connect the fact more output means more investment in new equipment and hiring more workers with the fact that this is something generally done by corporations. However elastic the behaviour of individuals is to tax policy, it should be higher for the large multinational corporations with big tax bills given that they are relatively highly mobile in terms of where they can arrange their costs and profits for taxable jurisdiction purposes. Mankiw's observations apply only to what an increase in the size of the "pie" resulting from a smaller relative slice means for a government's absolute slice. With a corporate tax cut, we are also talking about poaching from slices of other governments (when Austria cuts its corporate rate to 25% from 34% and German firms started moving across the border, the German Finance Minister accused the Austrians of "fiscal dumping.").

In any case, the difficulty of modeling the revenue impact is great enough that this argument will have to be settled empirically. On that count Mintz notes that
Ireland’s corporate income taxes comprised a 3.4% share of GDP in 2005, which is similar to the corporate tax collected in Canada as a share of GDP (3.5%), even though Canada has a statutory corporate income tax rate that is almost three times higher than the Irish rate. The US, with one of the highest corporate income tax rates in the world at 38.5%, collects only 2.9% of GDP in corporate tax revenue, less than in Canada where corporate income tax rates are lower. ...

Mintz also runs a regression that shows an inverse relationship between METR rates and net foreign direct investment (FDI). A 2003 study by de Mooij and Enderveen has found that a 1% reduction in the effective tax rate on capital can increase the foreign direct capital stock by about 3.3%. KPMG's latest corporate-tax survey noted that while VATs have been going up around the world (a trend defied by our federal Tories), corporate rates have been going down: "In the past 14 years, the average corporate tax rate of countries surveyed by KPMG declined nearly 29%."

Will Barack Obama's chief economist Austan Goolsbee challenge the existence of a Laffer curve for corporate taxes? It appears that Goolsbee already has his hands full challenging it with respect to personal taxes:

The NTR [New Tax Responsiveness] literature has tried to estimate the impact with data on high income people and claims to find large effects. If true, this work means that the marginal deadweight cost of the income tax is quite high and it calls the progressivity of the tax code into serious question.

What does Goolsbee conclude? That the "...evidence from the 1980s—is atypical..." In other words, the work of Lawrence Lindsey and Martin Feldstein et al with respect to the Reagan income tax cuts proves the supply side point with respect to those particular cuts.

In any case, check out TIME blogger Justin Fox's interview with Laffer from December:

Fox: [Goolsbee] saw Obama as pretty moderate ...
Laffer: Not from what I read. I love Obama and I think he's a hell of a neat guy and a smart guy. But he'll destroy the economy...

Friday, April 4, 2008

North American income tax rates

I will be putting up a post about the Laffer curve shortly, but first some background:

Republican presidential candidate McCain is citing the Laffer curve as part of his argument for making permanent Bush's cut of the top income tax rate from 39.6% to 35%. Both Democrat candidates are opposed. While seven states impose no additional state taxes, citizens in California pay about another 10%, as would citizens of New York City who pay a city income tax of about 3% in addition to the New York state tax of about 7%. The top US rate can thus range from 35% in Miami or Vegas to 45% in LA or NYC.

The lowest top rate in Canada is in Alberta, where it is 29% federal plus 10% provincial for 39%. This rate, however, kicks in at $120K, whereas the $77K to $160K bracket in the US is 28%. All of the US thus has lower income tax rates than all of Canada for incomes between $120K and $160K. The top 35% bracket for US citizens does not kick in until $350K (the $160K to $350K bracket is 33%). The top rate for Albertans on capital gain income is 19.5%, which was comparable to the US rate on capital gains income until 2003 when Bush cut it to 15% (and just 5% for individuals earning less than $32K).

The top US rate from 1944 to 1964 was in excess of 90%. When Reagan took office it was 70%, and when he left it was just 28%.

Is it possible to make $80K in unearned income (from capital instead of from employment), have no donations, and still pay no income tax in Canada? Yes. Borrow $1M at 8% and invest that along with $1M you already have (unless you are applying for a US home loan circa 2005, you generally can't borrow a million unless you are already have a million). Sell after a year for $2.16M (a 8% return on $2M) to realize a $160K capital gain. Pay back the $80K you own on the loan and you've got $80K in after-tax disposable income for the year. On your tax return you report $80K on line 127 (the capital gains inclusion rate is 50%), but you also get to report $80K on line 221 ("carrying charges and interest expenses") so you net out to zero! Not bad for someone who never worked an hour that year!

Can this be scaled up so that you make a million and still pay no income tax? No. As soon as your capital gain starts going over $165K you'll have to pay the AMT (Alternative Minimum Tax). The feds will begin calculating with 30% of your capital gain, allow you to subtract just $50K (assuming a $10K personal exemption) from that, and then make you pay 15% of that remainder. So on an income of a million (a $2M cap gain and $1M in deducted interest) that's a federal tax bill of $83K. The province would then grab 35% of that federal bill, for a total tab of $112K. Still, 11.2% to both the feds and the province combined isn't all bad when you've got a million in pre-tax income. If you should ever get a real job and pay taxes normally you could also use the AMT you paid in the past against your new employment income tax. Finally, no tax is paid on a capital gain donated to charity.

What's bad is if your investment returns just half of the rate you borrowed at such that you only have a cap gain of $1M instead of $2M. Now you have an income of zero after paying the $1M in interest you owe. But you still have to pay tax (albeit just half as much this time because your capital gain was half) because the AMT formula still applies to your capital gain!

Tuesday, April 1, 2008

"Flaherty doesn't know what he's talking about"

Macleans scribe Paul Wells contends that this Alberta government source "suggests" the federal Finance Minister "doesn't know what he's talking about" when he claims that "Ontario's business taxes are currently the highest in Canada."

If one considers what Flaherty is calling for in full context instead of relying on a Toronto Star snippet, it may be noted that one must also consider capital taxes and the structure of the retail tax. Wells cites a speech by Barrie MP Patrick Brown in which Brown quotes Jack Mintz:

Ontario has one of the highest effective tax rates on capital not just in Canada but around the (industrialized) world. The government has not understood that its policies have hurt capital investment and what it does to productivity.

Is it the case that Mintz, arguably Canada's #1 tax expert, "doesn't know what he's talking about"?

The Brown speech, which Wells doubts is "prudent", explains what is really at issue here, which is the Marginal Effective Tax Rate or METR. It's true that Nova Scotia, for example, has a higher corporate rate than Ontario. But Nova Scotia has harmonized its sales tax with the federal GST. Ontario refuses, primarily because that would mean converting its retail sales tax to a value added tax, which would cause it to lose the 40% or so of its sales tax revenues currently paid by business (never mind that they might make a lot of that up in increased corporate tax revenues, as Mintz as noted elsewhere). I've worked at Finance Canada and I've seen data suggesting that harmonization would have an even greater impact on Ontario's METR than reducing its provincial corporate tax rate to zero. Economists have recognized the efficiency of a VAT for a some time now and VATs have accordingly become progressively more popular amongst developed nations. Ontario's retail sales tax harms corporate competitiveness because it applies to business inputs, increasing production costs and deterring investment.

If Wells' point is simply that the METR in the United States is higher than in Ontario, point granted. But the US tax system is no model of efficiency. Even if McGuinty were to cooperate with just the goal of a combined 25% corporate tax rate in Canada by 2012, this would still be higher than the average EU rate now. That Report on Business link I just provide there does get after the feds for not having launched "a serious reform program", but the feds, both Conservative and Liberal, have in fact made significant progress relative to 2000 and that article came out before the October 30 Economic Update.

In fairness, Wells concedes that "this is not my field of expertise" and calls for other figures. These numbers aren't very easy to provide, however, since there are so many moving parts. For example, Quebec's VAT still contributes to its (and Canada's) METR because some tax is still imposed on some capital inputs. It just happens to be very small. There's also the federal Atlantic investment credit which actually gives New Brunswick the lowest METR in the country (which may be reason why the Alberta government doesn't advertise an interprovincial METR comparison). I would simply presume that Finance Canada is giving the government valid numbers, and if there is any doubt, contact them directly. I fully grant that, given what we know about Flaherty's style, he's more likely to be aggressive with the information he is given than, say, former Minister John Manley (and, yes, it is somewhat contradictory for the feds to call for Ontario to effectively raise its VAT (by zeroing out its current PST) while the feds cut their own VAT; the Tories want us to listen to the Finance Canada economists except when they don't want us to). The current Director of the Business Income Tax Division in the Tax Policy Branch is Nancy Horsman (613) 992-1008 or Horsman.Nancy [at]