Wednesday, June 25, 2008

British Tory fired over remarks to blogger

A left wing blogger/journalist asked an aide to London's new Conservative mayor, Boris Johnson, for a response to the suggestion that Johnson's election "may trigger an exodus of older African-Caribbean migrants back to the West Indies."

“Well, let them go if they don’t like it here,” responded James McGrath.

After consulting with James Cameron, the leader of British Tories, mayor Johnson cited London's "ethnic and cultural diversity" and announced that McGrath had been sacked.

The reaction of Tory blogger Iain Dale: "All Boris has done is attempt to appease people who are quite frankly not capable of being appeased."


If one were to substitute McGrath's "go on and leave" suggestion with "go on and bleed", what would you have? Trudeau's infamous "Just Watch Me" remarks in 1970, of course: "Yes, well there are a lot of bleeding hearts around who just don't like to see people with helmets and guns. All I can say is, go on and bleed, ..."

McGrath's reaction suggests that he, or perhaps his boss Johnson, doesn't care if they stay or go. Like Trudeau, he seems to be saying he that doesn't care what his critics think. Arrogant? Obviously. Racist? If it had been suggested to McGrath that the proposed new tax policies concerning "non-doms" might lead to that group "going back to" its country of origin and McGrath had responded "let them go then", that would have been 100% analogous and no one would have considered that a racist response ("the vast majority [of non-doms] work for City banks, hedge funds and private equity firms").

Although someone might say it is racist to assume that a person of a certain colour living in Britain has a home somewhere else "to go back to", it wasn't McGrath but the blogger/journalist that made that assumption. The blogger says he, in turn, was alluding to an African-Caribbean columnist's suggestion. If, then, there could not have been racism at the bottom of the chain, where did it come in? The blogger ran with the hypothesis instead of challenging it every bit as much as McGrath.

What is even more ironic is that the blogger decided McGrath's country of origin is relevant to how to judge him, introducing it in a later post as explanatory of McGrath's attitudes. In my own view, the fact McGrath is Australian is relevent, because Australians as a group are far more racist (or politically incorrect) than Canadians (or Brits, evidently) in their comments. Of course, I've never been one for being politically correct...

Saturday, June 21, 2008

Is the PermanentTaxOnEverything™ really revenue neutral?

Andrew Coyne has taken a look at what the Liberal Party of Canada is actually saying about their Green Shift and argues that the plan is not, in fact, revenue neutral.

Leaving the numbers aside (which should be leave asidable if the plan's claim that the authenticity of its revenue neutrality will be subject to independent audit can be taken at face value), Coyne's point is debatable because it gets into semantics. One could argue that the proposed $350 Universal Child Benefit is functionally a targeted tax cut as opposed to new spending, since the spending (or saving) would be at the total discretion of the private consumer (or investor). Indeed, that's exactly how the Liberals described the Conservatives' child care plan in the 2006 campaign (remember "beer and popcorn"?).

But by that analysis (which asks whether the entity purchasing the good/service or investing is public or private), everything that puts a government cheque into the hands of private actors, whether it be Canada Pension payouts or EI money, is functionally a form of tax cut as opposed to government spending. Indeed, when economists calculate GDP using the expenditure approach, GDP = C + I + G + (EX - IM) or consumption plus investment plus government spending plus net exports, and G here does NOT include transfer payments.

If one steps back and considers the issue from a macro perspective, what does the fact transfer payment recipients have full discretion over the spending of their benefits mean? The government is still "stealing from Peter to pay Paul". Sure, Peter and Paul are both private individuals, but the government is still interfering in the economy.

The critical distinction to draw is thus between targeted tax cuts and broad-based tax cuts. A targeted tax cut is functionally equivalent to a government transfer. There's ultimately no economic difference between, say, you receiving $10 a month from the government to help you buy your bus pass and you receiving an annual tax refund of $120 because a line on your tax return said you'd qualify for it if you use public transit.

This is why much of the grab bag of tax cuts that have proposed by the federal Conservatives are, in macroeconomic terms, not quite the reduction in the role of government it is popularly perceived to be (even if we assume, entirely hypothetically of course, that they were restrained in terms of direct expenditure). Sure, it doesn't end up on the government books, but the fact is that the allocation of goods, services, and capital is being shifted by government policy.

Just as non-bus riders (or non-tradesmen or non-students or non-parents-with-kids-in-physical-fitness-programs) functionally subsidize those who are, so it is that the Liberal Universal Child Benefit is functionally a subsidy.

The growth in the size of the government budget does not tell the whole story. A truly smaller government would also broaden its tax cuts. Indeed, the broadest income tax cut would be to zero across the board, with government funds raised by a consumption tax instead.

Reading the Liberal plan in detail, its use of the revenue raised by the carbon tax is more "planned" than I had initially appreciated. As such, it is well on its way towards the end of the "centrally planned" spectrum whereby the $15 billion tax increase would simply be a $15 billion shift from the privately controlled economy to the government controlled economy. I would still support it, but with tempered enthusiasm.

McCain calls Dean Acheson "a great statesman"

In McCain's Ottawa speech yesterday he saluted Truman's Secretary of State Dean Acheson. Apparently both of Acheson's parents were Canadian.

In March of last year I was staying in an old Jerusalem hotel with a Mandate feel and a reading room with small library upstairs. I came across Acheson's 1969 Present at the Creation: My Years in the State Department and ended up deciding against a planned visit to Jordan in order to remain in Israel and finish the book.

The transformation in US foreign policy from FDR's wartime support for Stalin (which ranged from refusing to support Churchill's proposal to assist the Warsaw Uprising since it would defy "Uncle Joe", to presiding over State and Treasury Departments shot through with Communist spies, to suppressing a report that would have correctly blamed Stalin for the Katyn Massacre) to a proxy war against Stalin on the Korean pennisula is one of the remarkable phenomena of 20th century history, especially in light of the popularity of isolationism in the US as late as 1940.

In many respects, support for capitalism as an economic system collapsed in the wake of the Great Depression, with central and eastern Europe moving to either fascism or communism the 1930s, and western Europe / North America moving to a mixed economy. The Red Scare of the post-War period would never have had the traction it did if communism in American hadn't been a real deal in the 1940s. The wartime culture reflected a common, if not the prevailing, sentiment, with Hollywood reeling off unabashed pro-Soviet propaganda productions like Mission to Moscow, Song of Russia, and The North Star.

Acheson's book sheds some light upon that transformation, written as it is by someone who was a lifelong Democrat (in 1950 House Republicans resolved unanimously that he be removed from office... this is where I remind you of McCain's "great statesman" tribute) and a (mistaken) defender of Alger Hiss. Acheson was prepared to trust and work with his country's wartime ally in Moscow but was unable to do so. Who he could work with was his country's wartime enemy. When it came to actual negotiating, Acheson became an admirer of West Germany's first Chancellor, Konrad Adenauer, while he was occasionally frustrated with the French and ultimately of the view that Stalin's people were implacably hostile and obstructionist.

If I had any criticism of Acheson's memoirs, it would be that he wasn't self-critical enough. When US soldiers were dying in Korea in 1950, shouldn't that have raised some questions about how Stalin seized North Korea in the first place and why that wasn't prevented? FDR's veep Henry Wallace published Where I Was Wrong (about the Soviets) in 1952, but from Acheson I got the impression he didn't believe that he, or the adminstrations he worked for, were ever seriously wrong.

Friday, June 20, 2008

McCain tells Hillary supporters he was for Breyer and Ginsberg?

It's one thing to be a maverick, and another to be a total apostate (although whether McCain was EVER loyal to conservatism is debatable).

Johnny Mac reportedly met privately with Hillary supporters at his Virginia headquarters and, in response to a question about judges, said "he supported Bill Clinton with both Ginsberg and Breyer."

Although it is true that Ginsberg was confirmed by a Senate vote of 96 to 3 and Breyer in an 87 to 9 vote, it is jaw dropping that McCain would say, in 2008 and after Obama voted against John Roberts' appointment, that he supported the appointment of these two judges.

Ginsberg, co-founder of the Women's Rights Project at the ACLU, claimed that the Boy Scouts perpetuate stereotyped sex roles, so they must be gender-integrated or abolished. "Midshipman" should be changed to "midshipperson", and so on. Just two weeks before she gave opening remarks at a lecture series co-sponsored by the NOW Legal Defense and Education Fund and to which she lent her name, as a sitting Supreme Court Justice she had supported the side promoted by this feminist lobby group in its friend-of-the-court brief.

Yesterday, the USSC decided in favour of the US Chamber of Commerce against union interests by a 7 to 2 vote. The two dissenters? Ginsberg and Breyer.

What, again, is the point of voting for McCain? To send a message to everyone who has waited patiently to immigrate legally to the USA that they should have entered illegally since they would ultimately be granted an amnesty in the end? To support someone who on Iraq and militarism generally has stood with the Bush neo-cons against paleo-cons like Pat Buchanan? To have a President who explodes in inarticulate rage on a regular basis? An Obama Presidency would be very well received internationally, and although international opinion, along with the opinions of Obama's key American constituencies (blacks, youth, and the educated) must be rejected if Obama's wrong on the issues, if that's to be done it should be crystal clear that Obama is, in fact, wrong. With Obama's recent excellent speech on fatherhood and his backing away from the anti-NAFTA rhetoric, there is reason to believe he might give more heed to moderating voices, like Austan Goolsbee on economic policy, than his Chicago activist days might suggest.

Now, it could be that Will Bower, the source of this McCain quote on judges, is less than totally reliable. As the Ben Smith blog post notes, he's the founder of PUMA ( "Party Unity, My A$$"), and (as claimed by fivethirtyeight)

On Wednesday, Bower attended Larry Sinclair's press conference, saw Sinclair literally accuse Obama of murder, saw Sinclair's lawyer wearing a kilt, saw Sinclair flee the room after the press conference because he was moments away from being arrested, and came away saying that Sinclair's story was "worth exploring".


Bower now says on fivethirtyeight's comment section that

McCain said that he wants more justices like *Roberts* and *O'Connor*. He did not say that he *wants* justices like Ginsburg and Breyer. He simply stated that he supported Bill Clinton's authority to nominate justices, and that he (McCain) felt that Ginsberg and Breyer were far too qualified to be rejected for any ideological reasons.

This suggests that the Straight Talk Express hasn't completely derailed (and if there are further reliability questions, they'd likely be better put to Ben Smith than Bowers). McCain's suggestion elsewhere that Alito was too brazenly conservative for him, which I've noted earlier, indicate that a preference for Roberts and O'Connor is entirely plausible, especially before an audience of Clintonites. That he would prefer O'Connor to a Scalia is not going to impress conservatives, of course, but at least he voted for Roberts, which Obama did not. That Obama was unwilling to extend to Roberts what McCain was willing to extend to Ginsberg and Breyer certainly supports the argument that McCain is more centrist and bipartisan than Obama.

And McCain remains fundamentally more correct on some important policy issues.

Wednesday, June 18, 2008

it's all over but the cryin

I've referred to the psephologist fivethirtyeight before, but erroneously suggested that Bush won the 2000 election by 538 votes in Florida. In fact Bush won the certified count by 573. 538 instead refers to the number of votes in the US Electoral College.

Anyway, it now looks like Obama pretty much has the Oval Office in the bag. 538 has Obama's odds of winning up to 75%, and trending higher.
McCain faces a next to impossible task in light of the fact that more than 38% of Americans self-identify as Democrats, compared to less than 29% calling themselves Republicans. These party ID numbers mean that McCain would have to vastly outdraw independents AND hold on to his base while Obama loses his.

There just aren't enough Republicans in 2008.

the Alberta govt pay raises

I haven't commented about this since not much needs to be said.

However, I should address the "attact talent" argument. These raises are ultimately going to make candidate recruitment even more difficult for the Wildrose Alliance, because the comparative attractiveness of running for a P"C" nomination is even greater than before. Yes, more people will be attracted from the private sector, but only to one party.

federal Liberals outline carbon tax

Dion has rolled out a solid policy in the form of a $10 per tonne of "greenhouse gas emissions" tax, gradually increasing to $40. The Liberals are swearing the tax will be revenue neutral, meaning the bottom income bracket may drop a point and a half to 13.5%, with the middle and upper middle brackets down a point each to 21% and 25%. Better yet, there should be some reduction in the corporate rate.

Whether the consumption of carbon is that much more environmentally threatening than the consumption of Twinkies, I'm not sure, but that ultimately doesn't matter: government has to raise revenue somehow, and taxing consumption is more efficient than taxing income.

But wouldn't there be a disproportionate impact on Alberta?

Jack Mintz says he is "not sure".

It's my understanding that the tax is on consumers, not producers, and is such is about as Alberta friendly as one can get. Followers of this blog will recall from my notes of mid-March that Stelmach is pushing carbon capture, and Enbridge CEO Pat Daniel estimates that carbon capture would cost on the order of $80 to $100 per tonne of emissions. So who is really looking out for Alberta industry?

Saturday, June 14, 2008

"the citizens of Alberta get yearly dividends from the oil companies"

Or so says former Clinton Labor Secretary and UC Berkeley economics prof Robert Reich.

As an aside, I agree with Reich that Obama's proposal to auction emission credits is better, but that's because if the government auctions them off, then the price of a carbon allowance is effectively a carbon tax.

Ireland rejects Lisbon Treaty

Colm Tóibín, in a column titled "A godsend to every crank in Ireland - on the left or on the right", says
I support the European project as a way of protecting me from Irish politicians. I voted for Lisbon, not because I wanted to follow the Irish political establishment but because I despise it and need protection from it.

Well said.

"It's such a toxic cocktail of anti-globalisers, neocons, the clergy and Trotskyists. Frankly, we're in a big mess," observed Andrew Duff.

Micheál Martin, the Irish minister for foreign affairs, told of a voter who was leaning no, based on a leaflet from the anti-treaty campaign group Libertas. Martin suggested she read the information from the neutral referendum commission. But she had no idea what he was talking about. "We up here in the elites have the idea that everyone is listening. But it didn't register."

As Fintan O'Toole notes, "But to remove most of the things people objected to in the treaty, they would have to have been there in the first place."

Indeed, all too much does not "register". I've heard various complaints about the low turnout in the last Alberta election, but frankly, I see that as a total red herring. You could have 90% turn-out but what does that mean if people are not "listening" and engaged in the issues?

There's no shortage of people who believe that empowering supra-national organizations like the WTO disempower individuals. Yet the WTO has never started a war, never enslaved a people, never done anything that national governments have done except stand up for the right of individuals and freely associated individuals to conduct commerce without interference from national governments.

more on a sovereign wealth fund (AKA a REAL Heritage Fund)

Suppose you live in a town of 1000 people and a million dollars suddenly lands in the town square, to be shared equally by all the people. Each person is $1000 richer, right? Yes. But are you really richer? Suppose you go into the local gadget maker's store and say you want to buy two gadgets today instead of the usual one. After all, you have the money for more. Meanwhile, she comes into your store and says she'd like two widgets instead on the usual one. But how is everyone in town supposed to double production overnight? They can't, of course, which means that the fact all your customers have another $1000 means you raise prices for your limited supply, while they, in turn, raise prices on you. No one in town will end up genuinely better off, and tourists willl stop coming because they can't afford it anymore.

This is why economists talk about moving out the long run supply curve as the ultimate policy objective, as opposed to manipulating the demand curve. In a closed system, you aren't any better off unless you can increase output.

There is another solution, and that's to open the closed system. If that million dollars is in the form of an asset outsiders want, A) you can trade with foreigners for stuff OR B) use it to buy foreign assets. I've been primarily advocating solution B, in part because many things are non-tradable. You can't import a haircut, so if everyone in town decides they are going to spend their money on services like haircuts, the price of a haircut will simply rise (and the haircutter won't be any better off either if the services he wants, like being waited on at a fancy restaurant, can only be supplied locally as well). More dollars chasing an unchanged supply is the very definition of inflation.

The other argument for solution B is that if Jay-Z can, "in anticipation of precipitation, stack chips for a rainy day" on Rihanna's Umbrella track, so can we. If Alberta simply consumes its natural resource windfall, we could end up in the situation whereby Alberta's future generations survive by selling their labour while the citizens of Norway, the UAE, Singapore, live off their capital (investment bank Morgan Stanley estimates that sovereign funds currently hold an estimated $2.3-trillion and their holdings will expand to $12-trillion within a decade). This would be a less than brilliant strategy for the province when the ratio of active to retired workers is expected to decline.

Now how can this be sold politically to Albertans? A problem is that governments are not generally held to account for what they COULD do but didn't. Albertans need to feel that they are entitled to that ownership future, where that ownership is of a growing (financial) asset as opposed to a depleting (non-renewable) one. My thinking has been that a periodic dividend to Albertans could be promised starting at some future date, such that unless the government starting saving instead of spending, independent actuaries would stand up and say, the promises cannot be fulfilled. If the government is seen as trying to fund current expenditures by raiding social security, Albertans might not tolerate it. The abstraction will be more concrete. The problem with this approach is that the idea that there will be a cash shortage remains pretty abstract given current conditions. The government could always find someone to say that if oil prices continue to rise indefinitely, the government can continue its profligate ways. Indeed, the raiding of Albertans' futures is essentially what is happening right now, yet it seems to be tolerated just fine...

The room for optimism here follows from the fact Albertans don't tolerate deficits. Conceptually, building an asset is the exact same thing as reducing a deficit. If we can get that across, it can sell politically.

Thursday, June 12, 2008

"Alberta defends spending oil cash OECD wants saved"

Having been through England, Bulgaria, Macedonia, Albania, Montenegro, Serbia, Hungary, and Slovakia over the past 3 weeks, I am now in Stockholm, Sweden, and expect to be here for a few months.

What should we make of the fact the OECD is taking the Alberta government to task over its spend instead of save mentality? The fact the OECD is criticizing a government is not notable in the slightest, but the fact the government here is sub-national is unusual.

The Globe and Mail has an excellent article on this. Note the bit about "the report was reviewed by senior government officials who had the chance to comment before its release". One of my jobs while working for Finance Canada was to respond to OECD requests for pre-release reviews. National governments might be able to ensure greater accuracy than a Paris-based organization could achieve on its own. you see. It wasn't often that there would be much to really say, however, beyond occasional revisions to raw data. Fact is, Finance Canada and the OECD are both staffed by and large by professional economists, so in terms of policy prescriptions, any objection would more likely come from one of the Minister's political people on the 20th floor that a civil servant on a lower floor.

... there's a growing recognition that Alberta's excess of cash is overheating the economy and causing it harm, Mr. Drummond said.

I'm not sure what Mr. Drummond's sources are, but as a candidate in this year's provincial election, I'd say "recognition " was pretty close to zero. If there was REALLY "recognition", the provincial Tories would not be so foolish as to be responsible for the Reuters wire headline you see at the top of this blog post.

That said, my former U of A economics prof says "In Alberta there is more and more pressure for people to think of this more seriously," and he (Andre Plourde) is far more connected than I am so there must be something to it. However, at this point I have to disagree with Dr Plourde's advice, "Don't be surprised if that kind of messaging comes out from the Alberta government in the next while." I would continue to be surprised, especially if the "messaging" was accompanied by real action. The academics and experts can publish report after report, but if I learned anything from the provincial election earlier this year, it's that it is very difficult to get political traction for such studies in a populist environment.

The past few months have, in fact, disabused me of some of my notions about politics. From my Ottawa office tower, I thought Alberta would be more amenable to fiscally conservative policies. It's younger, Western (which generally means more libertarian), and more dynamic in its approach to problem solving. But having lived overseas, it's rather painfully apparent that the populist tradition in Alberta, something I'd trace back to Social Credit, means Alberta will continue to be behind global trends, whether it be the building of sovereign wealth funds, movement towards consumption based taxation (which would include a carbon tax), electoral reform, etc.

The "dynamism" of Alberta problem solving applies to the private sector, not the public. I believe a key challenge for the public policy is the province is the populist skepticism of elites. According to C. H. Douglas, a pioneer of the social credit movement in Britain, "Systems were made for men, and not men for systems". Having travelled and/or lived in at least 34 European countries over the past 4 years and having a completed a "Master of European Affairs" degree in Sweden, I'm astounded at the power of Brussels' bureaucrats given the cacophony of languages, cultures, and varying levels of development in the European Union. I believe this to be in part because Europeans understand that the secret to government is protecting it from the daily mob. The Germans are so insistent on ensuring the someone with a PhD be addressed as "Doctor" that one of my Swedish professors said he was called "Doctor Doctor" because he had completed PhDs in two fields. More significant than any such isolated anecdote, however, is the fact that Europe's establishment learnt its lesson after the Dutch and French public shot down the proposed European Constitution in referenda, such that this time around 26 of 27 member states will not be putting ratification of the Lisbon Treaty to a vote. The exception is Ireland (and the Irish vote today, as a matter of fact!).

The point here is that the Globe and Mail article observation,

The idea that Alberta and Ottawa should take excess revenues from the energy boom and invest outside the country, Norway-style, has been bandied about for years. It's a concept that has gained credibility with intellectuals, but one largely dismissed by decision makers who would rather use the money here and now.

is quite telling. The "intellectuals" in Europe have influence, such that if they decide a common currency is efficient, start preparing for a common currency. In Canada, economic logic suggests Alberta should have either have its own currency or there should be a common North American currency, but you may be assured that the loonie will remain legal tender in Alberta throughout my lifetime and yours. As for Asia and the Gulf States, the masses are ignored not because they are vulgar because they simply don't have much use for democracy in the first place. So it is that Dubai's reigning Sultan is essentially the country's CEO.

Does this analysis, which further references my "cosmopolitan" experience, make me a snob? Of course. But note that I started from the opposite perspective: I was born and raised a proud Alberta conservative, who had little use for latte liberals. But I now see that while the good earth has more to teach us about human experience than ivory tower abstraction, there needs to be a firewall between the economic/fiscal and socio-psycho-spiritual realms such that conservative skepticism of the power of reason re the latter does not extend to the former. But more on that later...