Thursday, December 31, 2009

grim toll in Afghanistan

I have not seen DND disclose the names of the soldiers killed on December 30 yet so I best not disclose those details either, but suffice to say that Wednesday was a difficult day for 41 Combat Engineer Regiment.

One of my two current house mates made a little memorial (photo below) to a guy he knew for 12 years on the main floor here at the militia house.

I didn't know the departed as well but if I could talk to him I'd say it was my pleasure to hang out with you those few times years ago and your sacrifice will not be forgotten.

The red circles were not in the original photos. I added them with Windows 7 Paint after to identify Sgt George Miok. Below is a photo of George (centre) on a 35 km march in Bosnia in October 2002 with fellow Canadians.

Sunday, December 27, 2009

#yegcc: consultant hiring "completely mismanaged" - auditor

Amongst the various gems in the report by Edmonton city auditor David Wiun are the revelations that "consultants are being hired to check with other consultants, and thousands of dollars has been spent on contracts that haven't been completed" and "documents show 25% of consulting contracts cost more than what was agreed upon. And almost 60% of the time, the information submitted was deemed insufficient." Moreover, "contracts were awarded even though no business plan was drawn up detailing what the administration wanted from the consultant, and with several contracts, no final report was ever delivered."

Now one would think that if one isn't delivering a final report, one would lose the city's business to competing consultants (never mind in-house staff, who are even less expensive), but the people in this racket apparently have little to worry about since "only 12% of consulting engagements in [a] sample were acquired through open tender, 68% were awarded through the sole-source process".

Mayor Stephen Mandel explains that city government has grown so much under his watch that city council has to farm out its responsibilities to unelected contractors: "City council is doing more now than we ever have in the past... I think when I first became mayor, we were spending $400 million in capital and now it's up to $1.7 billion last year..."

I'd make two observations here. One, whatever one's opinion of increasing government spending, surely we can agree that the spending that is the most inefficient and vulnerable to abuse should be increased at the slowest rate. Yet consultant spending has soared 30% annually since 2000 to $92 million in 2008. To put $92M into perspective, the Salvation Army's Christmas Kettle fundraising goal is less than half a million, the Salvation Army having raised its goal by one-twentieth of a million this year in order to keep up with a 21% increase in demand for its services.

Two, perhaps city council would not have to hire so many expensive consultants without documentation, competitive bidding, or even a final report if the people in the council chair had more of a relevant skill set themselves. If one truly can't let city management make the decision, or approve the hiring of the people the city needs to make such decisions, then how about doing more analysis of one's own? One of the many councilors who seem to have no comment about the auditor's report relays information that was provided to him by the city with respect to the cost estimates for expanding the LRT west that cries out for NPV analysis. A Net Present Value calculation is taught in every 1st year MBA program and if the city were run like a corporation there would be no chance that competing billion dollar investments like this would be considered apart from a NPV analysis. Before anyone suggests that Brian Dell is displaying his snobbery again I remind readers of the $92 million in taxpayer resources that were spent on consultants do this sort of analysis and the fact city council does not seem to understand what they are receiving from the consultants (why is it left to the auditor to note the lack of real work done? why haven't councilors expressed dissatisfaction with what they have been receiving as opposed to just a professional expert like the auditor?) This isn't to say that the current council is completely out of its depth (it may compare favourably to previous councils which have included tax evaders, thieves, drunks and wife batterers), but rather to suggest that a gap remains between the typical background of an Edmonton city councilor and the private sector manager of a corporation with comparable revenues.

How can council approve a $3 billion+ LRT expansion decision, which will require double digit property tax increases even with the province and Ottawa carrying half the cost (as admitted by Mayor Mandel on Dec 15), without providing us with estimates of the numerator to a NPV analysis? That is to say, the revenue expected to be generated from the various route choices. This is not just a matter of accountability but demonstrating to the province and the feds that city council knows what it is doing. Besides the fact that operating the LRT along 87 avenue to West Ed is 25% less than Stony Plain Road by the city's own analysis, and that not going the 87 avenue route will mean the NAIT trains will require their own permanent turnaround facility south of Health Sciences, and the fact a whole new sort of "low level" train is to be used for Stony Plain Road, how many of the increasing number of residents living west of West Edmonton Mall are going to be inclined to take trams along Stony Plain Road to downtown relative to the faster 87 ave route? The fact that ETS Planning is proposing just 2-car trains here and ETS wants 5 car trains to the U of A from the south should speak volumes on this point. It is well established that the majority of transit users are commuters, and the idea here is to get cars off the road, no?

At issue here is the added risk of cost over-runs and lower with a new "low floor" system relative to building out the existing system. With respect to revenues, the European experience with trams is not analogous because many more of them do not have a car option to begin with, and the "potential development" of Stony Plain Road's urban stops should be considered in the context where development around the urban stops of Stadium, Coliseum, and Belvedere in Edmonton's northeast has been scarcely comparable to around the more suburban final stop at Clareview. Even the New York Times, the voice of the liberal US northeast, notes that costs for Denver's FasTracks project have soared from US$4.7 billion to nearly US$7 billion since approval in 2004 such that residents are being asked to support another tax hike while the project is mostly still just on the drawing board.

The real head scratcher for me is how this 3 comma expenditure on transit expansion can make sense when the communities themselves don't want it. Both west end councilors (Karen Leibovici and Linda Sloan) voted against the plan that included the Stony Plain Road expansion. This is the route that is supposed to keep west enders and residents from other areas of the city attracted to west end services! How is increased private investment along Stony Plain Road likely when existing businesses don't want this? If 87 ave residents don't want it either than why spend a billion plus to take rail to the west at all? I lived in Ottawa for years and the level of ridership is far higher than Edmonton's, despite the fact its rail network is negligible. If the private sector is skeptical that Stony Plain Rd can be turned into the northwest's version of pedestrian-oriented Whyte Avenue that ought to be a red flag. Dare I add that Whyte became more upscale over the last couple decades without a tram? 87 avenue has long been perceived as the logical route but in recent months Mayor Mandel seems to have concluded that the U of A, the biggest jewel in the city's crown, shouldn't be the anchor tenant of the transit system.

Lest anyone think I am public transit hostile, I have not owned my own vehicle for almost 8 years now. A possible difference between me and a lot of environmentalists is that I am more interested in my own responsibility for emissions and road congestion than in telling others what to do. I wonder if the councilors who approve of a tram stopping every few metres have any idea how the biggest headache for people who depend on public transport on a day to day basis is the time involved.

The overriding problem with Edmonton city council is, as is usually the case with left-leaning politicians, an over-focus on what they want to do as opposed to a focus on how to increase the resources that enable them to do what they want to do. Thinking about all grand things to be done instead of how to pay for them, in other words. The second question is what good politicians concentrate on, in my view, because the first question inevitably gets reduced into how much to steal from Peter to pay Paul. Compare the typical town and its council from the Middle Ages with 21st century cities; the difference between then and now is economic innovation and growth, not coming up with schemes that increased taxes on the businesspeople and merchants in town.

Lowe's, the world's second biggest home improvement retailer, applied in January for a permit to construct and operate a warehouse store in South Edmonton Common, but because Edmonton dragged the approval process out so long relative to Calgary, Calgary will get not one but three stores (along with the corresponding jobs and tax revenue) before Edmonton sees a store. "We believe in the economy of Calgary," said Lowe's Canada president. "As retailers of this calibre choose Calgary as their entry point for Western Canada, it tells the market Calgary continues to be the go-to market," an analyst observed. While business might not have any confidence in #yegcc, consultants enjoy council's full faith and confidence!

If this post weren't so lengthy already, I would call attention to Don Cayo's Vancouver Sun columns on municipal taxation, the sort of the thing that ought to appear in the Edmonton media and occur to #yegcc but does not. One problem at a time!

Thursday, December 24, 2009

Alberta politics in the national news

After wishing everyone a Merry Christmas - yes, I spell out the whole word instead of calling it Xmas, it's the so-con in me ;) - let's look at some recent headlines.

According to the cross-Canada Sun chain of newspapers, the leader of the federal (but anti-federal!) Bloc Quebecois believes that the Canadian government's action (or, more precisely, inaction) at Copenhagen was ultimately the fault of Alberta's Wildrose party.
I think Harper’s Conservatives have woken up to what’s happening in Alberta and will move even closer to the demands of the Wildrose party.
- Gilles Duceppe

Duceppe also says that Wildrose's rise in Alberta polling could prompt Harper’s government to strengthen its “tough on crime” position and its opposition to the gun registry.

Duceppe's claims don't seem to acknowledge that the Harper Conservatives had staked out the "tough on crime" and pro-gun territory well before Wildrose seriously threatened to form the opposition in Alberta, never mind government. Why would the federal Tories chew their cabbage twice by going over this ground again? How would getting even tougher on any or all of the environment, retributive justice, or opposition to gun control help them take back Edmonton Strathcona, or hold on to Edmonton Centre and Edmonton East, the only real swing ridings in Alberta? And that's just Alberta.

Having said that, I'll note that I never did appreciate the mentality of the Tom Flanagans which dismissed pleas from Tories in large urban centres to tread more lightly on social issues and the environment on the grounds that "we're never going to win places like downtown Toronto during this campaign." This short-sighted attitude has meant that Vancouver, Toronto, and Montreal are scorched earth for the federal Conservatives in future Harper-led campaigns in a way that they never were for Brian Mulroney's free trading Tories. It seems to me that Flanagan's attitude is perfect for locking down 100 seats in in the House of Commons, but has simultaneously created a permanent obstacle to getting to 155. If it is a matter of principle to not water things down then stand up for that as such instead of calling playing to a geographic base a shrewd tactic for winning a national majority.

It was accordingly quite satisfying to me that a poll came out earlier this month which showed Wildrose with a double-digit lead over the Liberals in Edmonton, since that should have nipped in the bud Flanagan-like attitudes that the party cannot win in Edmonton because of Liberal and NDP strength. It's theoretically possible to form a provincial government without a seat in Edmonton but it makes no sense to me to try for that since at least 10 out of 18 Edmonton seats are routinely well in play for fiscal conservatives and the party is going to want those 10 at some point in the future since there are likely to be at least 10 in the rest of the province which are going to end up tough to win because the local Wildrose candidate turned out to have some sort of liability or the PC candidate was unusually popular locally or because the local Wildrose organizers didn't have their act together or some local issue like nuclear power became the decisive issue etc etc. It's my hope that Wildrosers remain open to the possibility that a north-south divide is a consequence of the party being too dominated by the south as opposed to a cause that leaves the party dominated by the south.

Another Alberta political story that originated (to my knowledge) with the national media was carried by the Toronto Star, Canada's most widely read daily (unsurprising given the size of the Toronto market) and the national paper with the strongest left lean editorially (hence its occasional description as the "Red Star"). The Star quotes Alberta Liberal leader David Swann as saying that "[w]e need to move to the next stage for both of our parties, the Liberals and the NDP." And what's the next stage?
Swann said he's like to see an arrangement so incumbent Liberals or New Democrats run in their ridings without competition from the other party.

At seems natural to me that David Swann would be interesting in cooperating since he has never struck me as a John Manley sort of Liberal who has fundamental philosophical disagreements with the NDP over economic openness while sharing with them a discomfort with the mean-spirited backward-looking provincialism all too frequently found within "conservative" parties. Swann has always been at least as interested in "human rights" as in a free trading, open economy, and has hardly been more critical of government spending than the Alberta NDP. But there might not be as much news here as it sounds. Even if the NDP were on board with this (which they are not), it means business as usual in ridings like Edmonton Calder and Edmonton Beverly - Clareview which don't have either Liberal or NDP incumbents but which would easily go NDP if the Liberals were to not run a candidate (and both Wildrose and PC candidates were in the mix). All Swann would be giving up with his proposal is running a Liberal in Strathcona and Highlands-Norwood, which are NDP strongholds and the Liberal constituency associations could very well be defunct there anyway such there may be hardly any Liberal workers who would need to be told to stand down (in their home constituencies).

Swann's proposal accordingly doesn't strike much fear into me as someone interested in seeing Wildrose candidates elected in Edmonton since it would only apply to 5 out of 18 Edmonton ridings (the two with NDP incumbents plus Goldbar, Riverview, and Centre). That said, if the current Whitemud riding gets divided by the Boundaries Commission such that the upper half of it including the Riverbend neighbourhoods joins a Riverview riding that gets redistricted to south-side of the river only, it would create very big problems for both PC and Wildrose candidates based in Riverbend if there were no NDP candidate by virtue of (the additionally popular) Liberal Kevin Taft being deemed the incumbent not just in the left-leaning Belgravia neighbourhood near Strathcona but southwest across the Whitemud Ravine in right-leaning Riverbend as well.

Cooperation between the Wildrose party and PC party with respect to beating Liberals and NDP candidates faces a number of obstacles. First of all, polling results between these two have much more unstable with respect to not just each other but to other parties. For a long time the PCs saw the Wildrose Alliance and its antecedents as a fringe parties. Today, however, polling suggests that if one makes the (large) assumption that the PCs and Wildrose both exclusively draw on the "right wing" vote, it is the PCs that are "splitting" it, not the Wildrosers, since it is currently the Wildrose party that is polling ahead of the PCs by double digits.

Also, I don't think Wildrosers see the Liberals as worse than the P"C"s with anything like the unanimity that the NDP would see both the PCs and Wildrose as worse than the Swann Liberals. What good things have the Stelmach PCs done that would not have been done had the Liberals been governing? Not nearly enough things to warrant taking the side of a party that for years has been a Goliath against the David of Alberta Liberals, in my view. I suspect that the idea of helping Stelmach's party block Liberals has little appeal to the vast majority of Wildrosers, some of whom (especially the younger) might also feel they have more in common with anti-establishment projects like the modernizing Reboot Alberta than with an establishment tied into the ancient PC machine. The dynamic is also different because most Wildrosers see developments that help the Liberals as strengthening opposition to the currently governing PCs as opposed to strengthening a potential competing government to Wildrose.

If these news stories in the national media are not really news in Alberta, which might explain why they didn't originate in the local media!

Monday, December 21, 2009

Alberta govt plays anti-Ottawa card again

While BC and Ontario have tried to work with federal Finance Minister Jim Flaherty's department on tax issues, Alberta and Quebec are trying to be as obstructionist as possible with respect to another Finance Canada initiative, namely, a national securities regulator.

I've discussed this topic before, so suffice to say that what we are seeing from the Alberta government is protectionist sentiment dressed up as putting Alberta first. It is a page from the playbook of the crowd who condemn free trade at every turn on the basis that it erodes Canadian sovereignty.

If one asks "ordinary" Albertans whether they believe securities should be regulated by Alberta or by Ottawa, of course they are going to say Alberta. It's like Canada ceding power to the UN, right? In fact, a better analogy would be the WTO, whereby governments understand that giving up the right to regulate a globalized market unilaterally is in everyone's interest. And the people to ask here are Alberta-based issuers and investors in primary offerings. The overwhelming majority of us trade on the secondary market (if we play the market at all), dependent upon a developed primary market which few of us have a close knowledge of.

On an unrelated note, how did Ken Chapman become an authority on the Wildrose Alliance? Chapman continues to insist that "Danielle Smith's Wildrose Alliance Party has deep roots in social conservativism and religious fundamentalism." Now perhaps Paul Hinman's Alberta Alliance Party had such roots. But I am at a total loss as to what Chapman's source could possibly be for what he actually said. I've been to multiple Wildrose or Wildrose Alliance AGMs and social conservative policy planks have come up again and again for a general vote and failed to be adopted by the membership. As for the leader, after an extended, wide-ranging conversation with Danielle it became apparent to me that she would not give any "dog whistle" signals to social conservatives whether she wanted to or not because she doesn't hail from that background. I asked an associate who was privy to this same interaction what his primary impression was and he said plainly, "she's not one of us [social conservatives]." What Danielle does come across as is someone who is unusually (for a politician) interested in listening, including listening to social conservatives. This is not the same as appearing to social conservatives as someone who naturally identifies with them. If I introduced her to a Promise Keepers or Alpha course group she would be well-received and in turn feel quite comfortable but her previous experience with these sort of groups would be limited.

I accordingly have to call Chapman out here and say bull****. He is misrepresenting the Wildrose Alliance as some sort of stalking horse for legislating morality, which would not be an issue were it not for the fact that the media continues to quote him as an authority. It happened with SEE Magazine and most recently with the Edmonton Journal, which cites Chapman in order to claim that Wildrose practices "old-style, top-down, party politics." There may indeed be a character or two inclined to pursue a "top-down" approach when possible, but when it comes to the leader if she has any fault it is that she is not inclined enough to practice "old-style, top-down, party politics." Again, it's a highly misleading picture that is being painted. The party has some political weaknesses that will need to be worked on, but Chapman missed the mark completely with his assertions about what those weaknesses are.

Chapman's baseless hostility should at least lay to rest one argument I've seen employed against inviting non-partisan academics to address the Wildrose membership, which is that people invited to speak to Wildrose members or host seminars need to be people connected to the party or otherwise friendly. In October Chapman was invited to give a seminar to Wildrosers on the use of social media, but if he is Wildrose-friendly (never mind a member) I can only wonder what an enemy would look like!

Sunday, December 20, 2009

Brian Dell vs William Connolley on Wikipedia

Lawrence Solomon has written an interesting piece in the National Post about William Connelley's Wikipedia edits and deletions.

As one can see from here, almost 2 years ago I was the first to take issue with Connelley with respect to the Wikipedia article for the "hockey stick controversy." I finally gave up but not without writing a "Note to Article Readers" where I stated:
I have attempted to provide more balance to this article but my edits have been reverted wholesale and I fail to see the point of extended revert war. So I would just caution you that a critical criticism of Mann's graph is that it implies no Medieval Warming Period or Little Ice Age and these phenomena are well documented in other sources. ...

Wikipedia is leftist. Even TIME's Obamaphile pundit Joe Klein grants that much. In Wikipedia one can find laughable assertions like "the question of [Alger] Hiss's guilt [as a Soviet spy] or innocence remains controversial." But it is interesting to see some recognition of this in the MSM.

Despite my taking up the guantlet for the skeptical side, however, I think that it is still important to tread carefully with respect to climate change. In Copenhagen Obama said, "This is not fiction, this is science," and I would be very reluctant to challenge that claim head on. Just as no government, either elected or unelected, anywhere in the world denies the climate change thesis, no scientific body of national or international standing is currently denying the reality of climate change either. In a community like Wikipedia editors, the need for a neutral point of view requires editors to give more representation to the views of the skeptics, but in a community of self-identified "conservative Albertans," there is the danger of going too far to the other side in one's rhetoric and advocacy.

Saturday, December 19, 2009

Paul Romer and innovation

Back on October 19, I said that in the coming months I would
advocate for the following policies:
1) cut the provincial corporate tax rate from 10% to 3% and income tax rate from 10% to 5%, making up the difference in revenue loss with a VAT that excludes all capital inputs. ...
2) adopt an innovation agenda that draws on endogenous growth theory
3) adopt a hedging program for natural resource related revenues

I haven't yet said much of anything about (2) yet, never mind (3). (1) and (2) both address the issue of economic growth, with (1) being concerned with incentives to add to the capital stock. If I own a warehouse but don't own any forklifts, if I go out and buy one that's investment since it adds to the physical stock of plant and equipment. But higher levels of investment are the not the only way to stimulate economic growth, and moreover they can only get one so far.

Stanford economist Paul Romer is generally considered to be one of the most prominent and pioneering contributors to endogenous growth theory. Rather than get overly involved in what "endogenous growth" means, I'll just emphasize the idea that with respect to trying to realize growth by only adding to the capital stock, there is a problem of diminishing returns. Professor Romer gives a 77 minute podcast here on his new growth theory, but I'd note one excerpt in particular where Romer explains this diminishing returns problem:
Think of an activity like moving goods around in a distribution center. Goods come in from manufacturers, and then the distribution center gets them on different trucks and sends them out to stores. You could run a distribution center with 100 workers and just one forklift, and the first forklift would be really valuable for moving the heavy things.

Then you could add a second forklift and that would still add real value. You'd get a lot more done in that distribution center. But by the time you've added the 30th or the 40th or the 50th forklift, each additional forklift is really not helping you very much. So with fixed recipes for how you arrange things while you're adding more and more physical capital, you do run into diminishing returns.

Economies which try to grow by just adding more and more forklifts eventually do run into serious trouble. The Soviet Union tried to grow like that for a while with essentially no innovation but very heavy investment in physical capital. And they grew for a bit because they started out short on capital, but they rapidly ran into diminishing returns from accumulating capital.

So you have to keep discovering ideas.

Ideas are the critical ingredient here. The ideas of interest here are innovations that allow businesses to produce more output per unit of input.

The upshot of Romer's work is an enormous emphasis on education in general and innovation in particular. The Alberta Research Council, the U of A's Technology Commercialization Centre, TEC Edmonton, the Ingenuity Fund, UTI, and Calgary Technologies would all be generously funded if I were in control of the purse strings, and just not because I worked for ARC in the past and "specialization in technology commercialization" is printed on my U of A MBA parchment. It is sound economics, as there are huge positive externalities here.

But there is more that government can do than just provide funding and tax incentives. Governments can facilitate the creation of innovation "clusters." One of Romer's many interesting proposals is for Canada to create a "charter city" in Cuba. Bilateral US-Cuban relations being what they are, the US and Cuba could agree to a third party's proposal to administer Guantanamo Bay, with the idea being that the third party could do for Cuba what Britain did for China by administering Hong Kong. After Alberta gets its own policies reformed such that they are truly investment, business, and trade-friendly, the province could cooperate with Ottawa to negotiate the acquisition of rights from the US and make the territory subject to Alberta tax and regulatory policy. A half-baked idea? Maybe. But it might also be a great opportunity for both Alberta and Cuba to advance economically, with the pace determined in part by what Cuba is comfortable with.

Alberta's ministry of Advanced Education and Technology is already well-placed to a do a lot of good things, it just doesn't have the attention it needs relative to competing ministries and there is an inclination on this government's part to set the stage for "picking winners" instead of focusing on the macro policy environment. "Theme 1" of "Alberta's Action Plan", for example, is "Enhancing an already strong tax environment." It is not, in fact, already strong, as tax policy experts have noted. Reference is made to the federal Scientific Research & Experimental Development credits that Alberta also offers, but as the CD Howe Institute observed in 2006,
the federal and provincial governments preoccupation with tax credits targeted at research and development, and relative inattention to the competitiveness of the overall tax regime, is misguided. In effect, the Canadian approach has been to give with one hand, by providing generous tax credits targeted at R&D, and to take with the other, by imposing high taxes on the fruits of innovative activity and entrepreneurship.
The 1998 Technical Committee on Business Taxation even recommended that SR&ED credits be reduced, in conjunction with other reforms.

An innovation agenda that acknowledges the work of people like Paul Romer, who is widely expected to eventually be awarded the Nobel in economics for his ideas about growth, is both supplementary and complementary to investment friendly tax reform.

Tuesday, December 15, 2009

carbon tax in the news

To continue from a VAT to an even more politically challenging tax reform, I note a post of mine from June:
...Had the Stelmach government understood the situation, they would have gotten ahead of this by signing on to a national carbon tax (something I've long advocated, as readers of this blog would know). A carbon tax would be bourne by Canadians in proportion to consumption, and therefore far more regionally equitable than by production. As an aside to those who believe climate change is a hoax, support for a carbon tax does not necessarily mean support for the idea that climate change requires fiscal action. We have to get taxes from somewhere, right? Why not get it by taxing consumption like on sales of SUVs instead of taxing everyone's personal income? We should be taxing consumption instead of income and investment anyway. Whenever I say I support a carbon tax I mean a revenue-neutral tax.

... Stelmach has tried to impress environmentalists by throwing billions of Alberta taxpayer dollars at the boondoggle of carbon capture. Needless to say, no one has been much impressed...

From Jeffrey Simpson's G&M column of this week:
The best way to spread the burden would have been a carbon tax, applied on both producers and consumers. The tax could have been collected regionally and recycled into the regions where it was collected, thereby easing Alberta's and Saskatchewan's pain.

But those governments had their heads in the sands
, hoping the whole issue would subside. So they did nothing in the one area that really counts: putting a price on carbon. ...

Both are big supporters of carbon sequestration, an unproven, expensive method of lowering emissions. In Alberta's case, the taxpayers will spend $2-billion to reduce emissions by perhaps five million tonnes, which is about 2 per cent of the province's total emissions. The world sees this policy for what it is – expensive and inadequate...

no government anywhere, from authoritarian China to semi-authoritarian Russia through all the democracies of the world, believes the climate-change deniers.

Here's a quote lifted from testimony to Congress by Ted Gayer (a former Deputy Assistant Secretary at the Treasury, equivalent to an Assistant Deputy Minister at Finance Canada):
The most frequent criticism of a carbon tax is that it would be politically unpopular. But to quote Milton Friedman, I think my role is to “prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible’ and then to recommend it.”

Economists like fiscal measures like the GST, and most other consumption taxes which would include a carbon tax, in no small part because they are simple and transparent. Yet these are the very qualities that make politicians hate them. Politicians prefer complicated and opaque taxes as those can be hiked in the future with minimal political penalty.

VAT in the news

The New York Times has an article devoted to a discussion of value-added taxes:
... economists across the political spectrum say a consumption tax may be inevitable once the economy fully recovers. ...

Like universal health care, every other industrialized country in the world already has a value-added tax (as do about 100 emerging countries). And also like universal health care, this once-taboo policy option has recently been invoked, at times begrudgingly, by many prominent Washingtonians, including ... two former Federal Reserve chairmen, Alan Greenspan and Paul A. Volcker....

“[Today] there are many more deductions and credits, which can often encourage inefficient behavior such as tax shelters,” said Leonard E. Burman, a public affairs professor at Syracuse University, about the changes to the tax system since the 1986 reform. “The ideal tax system has a broad base — few deductions or exemptions — and low rates.”

Most of the rest of the industrialized world — including, most recently, Australia — has already taken this lesson to heart by imposing value-added taxes. Unlike income taxes, which are often front-loaded on the rich, then subsequently diluted, a value-added tax is paid by almost everybody. That broad base is one of its major advantages, and why the International Monetary Fund frequently recommends it...

The value-added tax is also the darling of many economists for its bounce-a-quarter-off-its-abs efficiency. Its administrative costs to the government are generally low. It is also considered less of a drag on the economy over the long run than raising income taxes, which discourage people from saving money and thereby making capital available to businesses.

The article goes on to explain how a VAT would work.

For a more fulsome treatment, see this paper by the Tax Policy Center.

Unfortunately, the background to these US discussions is raising more revenue for the government, which is not what the object should be in Alberta. Revenue neutrality could and should be maintained in Alberta, and indeed the "left-leaning" Canadian Centre for Policy Alternatives says Ontario's HST is "virtually revenue neutral."
"Assertions that this is a tax grab have no foundation in reality," Lightman said.
"My hope would be that (this report) forces the debate away from the knee-jerk, uninformed charges we've been having towards a discussion of what is really at stake, which is a shift from income tax to consumption tax and from business to consumers."

Saturday, December 12, 2009

acting like a government

Yesterday's provincial poll results were not just a wake-up call to the governing party but to the Wildrose Alliance as well.

Wildrosers need to be able to adopt the stance of a government as opposed to a factional opposition. What do governments do? I think the HST is a good example of what governments propose and protest parties oppose. The only party in the House of Commons to oppose the federal HST enabling legislation is the NDP, a party that Canadians in general do not see as a government in waiting. John Manley, a former deputy prime minister of Canada, president-designate of the Canadian Council of Chief Executives, and my favorite of the 4 ministers I wrote memos to during the years I worked at Finance Canada, penned an op-ed in the Globe and Mail saying Liberal leader Michael "Ignatieff made the right call on the HST." What if Wildrosers called for a 7 point cut in Alberta's corporate tax rate and a 3 point cut in the income tax rate, funded by the introduction of a provincial 8 point harmonized VAT (i.e. a 13% HST)? The cries would sound about what elitist chamber-of-commerce types the Wildrosers are. But to make that charge is to imply that the Wildrose Alliance is not amateur, and right now the PC Party's biggest problem is the perception that they are amateurs. The contrast alone would be enough to preclude this line of criticism.

For an alternative, consider a call for a national securities regulator. The John Manleys of the country would waste no time indicating their support for a measure that both the executives of corporate issuers and professional asset managers have been calling for for years. It would be putting sound policy ahead of the vacuous spectacle of playing the anti-Ottawa card.

If Wildrosers are serious about going down the populist road, then why not just call for the elimination of all the civil service positions that provide policy support to the government? I mean, who needs them when we can make policy just fine without professional input? In reality the analysts in various government departments can explain how a lot of simple, easy to understand policy ideas may not produce simple, straightforward results because of a whole legion of factors that are difficult if not impossible to appreciate absent a large staff of researchers and analysts like those available to the ministers of various departments.

The Wildrose Alliance cannot just sit and wait indefinitely as a populist protest party for government proposals to appear that can be denounced. I would also note that Wildrosers need to give the media something to digest. Telling the media that the party will do something simple and popular that requires no explanation or expert defence is not giving the media something to chew on, which they see as their job. Telling them that Wildrose will do something that requires an expert verdict, on the other hand, does give the media something to do and will give the pundits something to defend. If these pundits are not defending you, they will be attacking you.

Before Wildrosers adopt the stance that global warming is a hoax or that base MLA salaries are the province's biggest problem, the question should be asked are these the sort of things a protest party would come up with or an actual government? Governments do things on the basis of industry or consultant advice that ordinary people have a hard time appreciating all the time. But that's what ordinary people elected them to do: make unspecified-in-advance detail decisions within a specified-in-advance philosophical framework. Wildrosers and Liberals could both propose identical tax reforms in detail but the electorate would receive them entirely differently because of primary interest to voters is the philosophical stance of the party, the context in which the detailed proposals are arising.

Having established a philosophical framework around fiscal conservatism, the Wildrose Alliance needs to a plank or two that is superficially unpopular but sound upon explanation, argument, and evidence. This is the ticket to being taken seriously.

Friday, December 11, 2009

new poll: in Edmonton Wildrose 36%, Lib 26%, PC 25%, NDP 12%

Angus Reid has released a poll of 1000 Albertans, the same size as the Environics poll released on November 5. A possible issue with this new poll is that it was a survey of Angus Reid Forum participants, and there may be some self-selection involved there. But leaving that aside, comparing these two polls is somewhat problematic, because while the pollster enumerated 5 options in both cases, Environics listed the Greens as the fifth option and Angus Reid (more correctly in my view since no Green party is currently recognized by Elections Alberta) listed the fifth option as "Other." Nonetheless, it appears that support for the PCs continued to slump across the province from late October to late November, with much of the drop in PC support in Calgary going to the Liberals and with the drop in Edmonton going pretty much entirely to Wildrose. The appearance of PC support bleeding to the Liberals in Calgary nonetheless strikes me as possibly just appearance, as the more likely explanation is that the Environics poll understated Liberal support in Calgary. Fact is, the Liberals took a greater share of the vote in Calgary in 2008 than within Edmonton city limits (33.9% vs 33.5%). Given that the Alberta Liberals have since proceeded to replace an Edmonton leader with a Calgary leader, the idea that the Liberals are at 30% in Calgary and 26% in Edmonton, as Angus Reid reckons it, strikes me as a lot more plausible then the Environics verdict that just 20% of Calgarians are inclined to vote for the red team.

It is also worth noting that Angus Reid confirms Environics' finding that NDP support in the capital city is down from the March 2008 election. Where have the 6 or 7 points the NDP appear to have lost from their 18% election share gone? Presumably to David Swann's Liberals, yet Edmonton Liberal support is also down 6 or 7 points relative to 2008 which means there may be a lot of Edmontonians who voted for Kevin Taft's team who are nonplussed with David Swann's group. That's something that makes a lot of sense to me, since while Kevin Taft and his talk about excessive PC spending led me to view him rather positively, I don't identify with David Swann at all.

The crosstabs are often the most interesting part of a poll. The province-wide breakdown for those in the $100K+ household income bracket is Wildrose 46%, PC 30%, and Liberal 16%. Given that the average household income in Edmonton Whitemud is $132K (and that is back in 2005), this may explain why our organizing in Whitemud has been so successful. I mean, look at this, Angus Reid has the Liberals in 2nd place after Wildrose in all demographics in Edmonton and for the six figure crowd (albeit province-wide for this tab) it is a 30 point gap, 46 to 16. The Edmonton Whitemud nomination for Wildrose is going to be hotly contested!

Besides Wildrose doing especially well in the rural south while the Alberta Liberals are quite weak in the rural north, the other crosstab of note is that Wildrose support skews noticeably older, with the Liberals skewing the other way (the PCs are inbetween on this tab, as on many). This is consistent with my experience on the ground and I have to admit I have been wearing out my welcome with a few older Wildrosers as I try to shove young, university educated people (uni grads being another demographic where Wildrose is weak and the Libs strong, with the Liberals running 8 points ahead across the province in this group according to this poll) to the front of the line. The mentality of the people on constituency association boards, on the provincial executive, and surrounding the leader is going to set the tone for the party as a whole, and accordingly I think the party needs to actively work to avoid adopting stances that preach to the choir. Environmentalism is a lot more popular with people of Danielle Smith's age and younger than those older, and I hope that older Wildrosers understand that there may be more to gain by expanding our foothold with 20 and 30-somethings than by messaging to older Albertans whom Wildrose has already won over by an absolute majority according to Angus Reid.

While I appreciate the idea of running up the score on favourable ground, my experience of politics has been that returns on investment decline after a certain point such that, for example, trying to shake the third round of votes off a tree is tough going because we are talking about fruit here that doesn't give up on the old branch easily. Find another tree and give it a first time shake. An effective shake means understanding what the tree is about and what makes it grow. I believe older Wildrosers are more than willing to cooperate so long as younger ones explain themselves (and the strategic value of bringing in their colleagues to positions whereby they could influence the party's stance) instead of just getting pushy and demanding with the old guard. In any case, whether new to the party or old, I would think most Wildrose Alliance members understand that the party is in the position it presently is because of one reason above all others.

Wednesday, December 9, 2009

benefits of carbon capture projects unproven

A media story about climate change and carbon emissions is always good for a lot of comments and a Calgary Herald story citing Wildrose leader Danielle Smith is no exception.

The facts are that the benefits of spending billions on carbon emission mitigation are unproven. Responsible fiscal policy means conducting a cost/benefit analysis with respect to programs and why spending on carbon capture and sequestration (CCS) gets a free pass here is beyond me. By how many fractions of a degree will the average temperature in Alberta be lower in 2050 for every billion of taxpayer dollars spent on CCS and how is that better for Albertans? If this is about helping Maldivians why are there no studies comparing the cost effectiveness of spending billions on CCS with spending billions on foreign aid to the Maldivians to help them adjust to climate change? Of course, there is a good chance we have not seen a cost/benefit analysis because climate cannot be reliably predicted.

As the BBC observes, "for the last 11 years we have not observed any increase in global temperatures." Climate scientists are acknowledging that their models have failed to predict the stability in temperatures that the planet has seen over the last decade. One wonders if this outcome should really be so very surprising when, as a writer in the UK Telegraph points out, "world-ranking physicists such as Professor Richard Lindzen of MIT and Professor Will Happer of Princeton have been arguing... that the models are fatally flawed because they do not take proper account of all sorts of other factors which play a key part in shaping the world’s climate..." Britain's Met Office estimates the odds of a 10 year global temperature stall happening by chance variation amidst a genuine warming trend to be 1 out of 8. Especially telling is this conclusion by the Met authors: "The simulations rule out (at the 95% level) zero trends for intervals of 15 yr or more." In layman speak, this means that unless temperatures move up by 2013, the hypothesis of global warming should be REJECTED by those whose approach to the subject is evidence and science-based as opposed to faith-based.

The head of the IPCC, Rajendra Pachauri, says that the Alberta oil sands should be shut down. Alberta politicians cannot have it both ways here. If they are going to take Danielle Smith to task for not accepting the IPCC's work uncritically, then they should either accept this call to close down the oil sands or explain why they are cherry picking recommendations.

From an economist's perspective, people should be focusing on stopping methane leaks from refinery equipment since methane has a much greater greenhouse effect than CO2.

The real problem here is not the consumption of carbon products but consumption in general. Hence my advocacy of general consumption taxes. There are a legion of strains on the environment, of which carbon levels in the atmosphere are just one, and one whose harm to the environment is dubious. As I've noted before, according to Nature magazine,

The Palaeocene/Eocene thermal maximum, 55 million years ago, was a brief period of widespread, extreme climatic warming that was associated with massive atmospheric greenhouse gas input. We show that sea surface temperatures near the North Pole increased from 18°C to over 23°C during this event.

That's right: more than 23 degrees above Celsius at the north pole. Yet the world kept on turning.

Friday, December 4, 2009

"Hancock's musings don't make sense"

I had been preparing a response to Edmonton Whitemud MLA Dave Hancock's support for blocking bitumen exports, but Deborah Yedlin says much of what I would say and says it more succinctly.
Shouldn't the emphasis be on creating a better environment for companies to take the risks they need to develop the resource as cost-effectively as possible? This is what would benefit Albertans in the long run.
Once again, the musings of the Alberta government smack more of populist politics than they do of robust, long-term economic policy.

Sunday, November 29, 2009

a home for Bill 44 refugees?

Chris LaBossiere has resigned from Dave Hancock's constituency association board of directors, as well as from the board executive. Like most of us in Edmonton's southwest, Chris sees Dave Hancock as a good guy personally and the problem is not with our MLA so much as with the governing party in general. This resignation seemed to be some time in development, and since we are both in Edmonton Whitemud, I gave him a call earlier this month to get an idea of where he was at politically and what sort of stance he intended to assume towards the Wildrose Alliance. My thinking is that he should come out to a Wildrose Edmonton Whitemud event to see if he would feel at home with Edmonton-based Wildrosers and see if local Wildrosers would in turn feel at home with him. This is not to suggest that Chris ought to be considered some sort of celebrity but rather to exhibit a spirit of open invitation that ought to be extended to every voter in the riding. Although Chris has expressed no interest to date in serving on the Wildrose Alliance constituency board, there are a number of former PC board members who have expressed an interest in serving on the Wildrose board and these situations have to be lightly managed against the possibility that some politically active people are looking to become bigger fish by virtue of jumping to a smaller pond.

If Chris had finally just had enough of the governing party's economic and fiscal management, or more precisely the absence thereof, he would be an easy fit with the Wildrose. But if the primary reason for his defection is Bill 44, that is a more difficult, and some might say more interesting, question. The facts are that in the midst of a leadership race with someone who wore his social conservatism on his sleeve, Danielle Smith went to Nanton, arguably the heartland of Alberta social conservatism, to say

We didn't need to come through with a parental rights clause. The concern they have is free speech. They already know they had the right to pull their kids under the School Act. Now parents are concerned that if a student brings up a subject, that student or teacher could be hauled up on charges. Teachers have a lot to worry about without the Human Rights Commission. There was frustration by some parents that some basics are not being dealt with enough. We don't deal with it by giving an unelected body of bureaucrats the power to control it. We should be addressing it a different way.

If anyone needed evidence that Danielle does not pander to win votes, criticizing the opt-out clause at the time and place she did is it. Her position on Bill 44 is in line with that of the Sheldon Chumir Foundation, which takes its name from a former Liberal MLA.

Based on these facts alone, one could argue that the Wildrose Alliance is a proper refuge for Bill 44 refugees. But I think this could lead to a misunderstanding, a misunderstanding akin to the confusion that sometimes exists between left/liberalism and libertarianism. Just because the Wildrose Alliance is unlikely to be leading the charge on social conservative issues, that does not mean that the party is likely to aggressively advance a socially "progressive" agenda. The party's primary concern, at least as I envision it, is professional, accountable administration and conservative management of financial and economic affairs. If one considers the mountain of material that goes from the Assembly or the cabinet to the Queen's Printer, the Bill 44 opt-out clause is a small drop in a very big bucket.

If Chris had ever taken issue with section 3 of Bill 44, like the Sheldon Chumir Foundation has, in addition to the opt-out clause, that would be revealing. But he's avoided describing himself as "libertarian" to my knowledge and in my phone conversation I recall him expressing a concern that Danielle Smith may be "too corporate." If Chris kept his Facebook wall feed, amongst other things, private I would keep that remark confidential, but he seems to be as open as I am when it comes to political opinions. "Too corporate" suggests to me the sort of perspective that takes as its starting point a skeptical view of accomodating business interests. It implies that business is, on the most general or fundamental level, bad, but can be good in a controlled environment. This contrasts with the view, a view held by most economists, that business is, on the most general or fundamental level, good, but can be bad in an uncontrolled environment. I suspect Mr LaBossierie would insist that he is not as anti-capitalist I suggest here. But the immediate context in which his resignation has occurred is Ken Chapman's Reboot Alberta weekend, an event generally styled as a conference for Alberta "progressives." Dave Cournoyer was a big booster of Reboot Alberta and I am a big fan of Dave's. Fact is, concerned citizens like Dave make this province more dynamic, diverse, and, dare I say, democratic. But Daveberta and I do not see the world, what's wrong with it, and what the solutions are in the same way. Dave was a strong backer of Don Iveson's city council campaign and since his win over Mike Nickel, Iveson seems to have been urging the city to spend more taxpayer money at every opportunity.

The bottom line is that I see Chris LaBossiere's resignation as a bellwether of Albertans' increasing sense of alienation from all three traditional political parties. While Wildrosers position themselves as an answer to this, a successor system would still have to have at least two parties, not just the Wildrose Alliance. I see the Wildrose as a modernization of the centre-right, and it would be unhelpful to democracy for Wildrose to try to accomodate the centre-left as well. Albertans deserve a quality, left leaning political alternative with which a party like Wildrose competes respectfully and professionally. There is a difference between laudable post-partisan ideals and unrealistic post-party idealism.

I think Chris did the right thing in any case. One of the reasons I take a hostile tone whenever I communicate with Ken Chapman is that I think Ken is having it both ways when he calls for change and more idealism while remaining tied into the cynical old PC party network. Either **** or get off the pot.

If one were to take away just one thing from this latest resignation, it is that the Progressive Conservative party is neither progressive nor conservative. If the party were called what it is perhaps it would be known as the Alienating Alberta party.

Friday, November 27, 2009

federal Tories stand behind HST

From the Globe and Mail:
The federal Conservative government will introduce legislation next week on which Ontario and British Columbia's plans to harmonize their sales taxes will stand or fall, delivering a powerfully problematic ultimatum to Liberal Leader Michael Ignatieff.

What's interesting here is that, contrary to the conventional wisdom that a tax reform that increases the visibility of a tax (e.g. from taxing business to taxing consumers) can only be realized by running away any sort of vote on the move, Harper's Conservative government appears to be standing firm.

As a Tuesday G&M article pointed out, "It was [federal Finance Minister Jim] Flaherty who began pushing the Premier [of Ontario] to adopt harmonization when the Conservatives came to power in 2006." I was working in Flaherty's Finance Department at the time and knew that harmonization was very popular amongst the economists there, which shouldn't surprise anyone since the HST is popular with economists and think tanks across the country.

According to Jack Mintz of the U of Calgary's School of Public Policy:
The 2009 Ontario Budget is a historic watershed in tax policy for the province. Both sales tax harmonization and a competitive corporate income tax rate will confer substantial benefits to Ontarians for generations. The marginal effective tax rate on capital investments in Ontario will be cut almost in half, leading in the long run to a 20% increase (equivalent to $47 billion) in capital investment, the creation of an estimated 591,000 net new jobs, and an increase in the annual incomes of Ontarians of as much as $29.4 billion.

If I might make an aside here, I would direct readers to a finding in this report that the 2009 METR in the USA is 26.9% versus 19.5% in Sweden. Having lived in Sweden more than a year I've long told anyone willing to listen back in North America that they have a false understanding of the Nordic countries if they think that the success that those countries enjoy as societies follows from taxing businesses. In fact I never detected the sort of anti-corporate sentiment in Sweden I routinely encounter in Canada. What Sweden, Denmark, and Norway do have is a 25% VAT.

Mintz is, of course, not alone. The Fraser Institute's economists addressed the situation in BC, saying:
Finance Minister Colin Hansen took a bold step in announcing that British Columbia will harmonize its sales tax with the federal Goods and Services tax. ...
Unfortunately, British Columbians will likely be exposed to many faulty objections and misperceptions regarding the HST over the coming weeks and months by those seeking to derail this reform.

Exhibit 18 of a November 23 report released by Ontario's Competitiveness, Productivity and Economic Progress task force is titled "Most HST myths do not stand up to scrutiny." The task force, chaired by Roger Martin of the U of Toronto's Rotman School of Management, notes that:
- In Atlantic Canada, [post-harmonization] prices on all items fell by 0.3%
- Competition will prevent [gouging of consumers] - that was the experience in Atlantic Canada
- Increased revenue from the harmonized sales tax is matched by reductions in corporate and personal taxes and by tax credits. The effect is revenue loss [to the government]

A 2007 study by the CD Howe Institute found that "annual investment in machinery and equipment in the harmonizing provinces rose 12.1 percent above trend levels in the years following the 1997 sales-tax reform."

A January report by the National Bureau of Economic Research argued that globalization is making it harder for national governments to tax income and recommended that taxes be shifted more towards a consumption base.

The Cato Institute has said "Switching to a consumption based tax holds the promise of spurring greater economic growth and vastly simplifying the federal tax system."

In September California's Commission on the 21st Century Economy recommended "the elimination of the 8.84 percent corporation tax" saying a VAT-like " business net receipts tax (BNRT) would serve to replace these revenues." Back in July, I noted that "California has a higher corporate tax rate than average, and corporate tax revenues are significantly more cyclical than either income or consumption taxes." The Commission's report addresses this very point saying their proposed BNRT "will allow the state to reduce its dependence on other more volatile taxes – specifically, the personal income tax and the corporate income tax." While the BNRT is not as close to a HST as it should be (Charles McLure of the Hoover Institute says it would be more efficient if piggybacked on a federal VAT) Governor Schwarzenegger said if the Commission's recommendations were contained in a bill he would "sign it immediately."

Unconvinced? Read the summary that the Institute of Chartered Accountants (ICA) of British Colombia has written about the HST and all of the "Institute Links" and "External Links" available here. Richard Rees, CEO of the BC ICA, laments that this "more modern and investment-friendly tax" will not get a fair shake because "Good public policy does not always equal good politics."

Some conservative critics, such as the Economist, say that "... a broad consumption tax, such as a value-added tax... is economically efficient, but could too easily become a politically convenient way to vacuum up more money and expand government." A carbon tax would be preferable, says the Economist. A carbon tax may indeed be preferable, but there is considerable evidence that the Economist has the politics wrong here. Stephane Dion's proposed carbon tax went over like a lead balloon in Canada in 2008, while now in 2009 Stephen Harper's government has dared Dion's successor to kill the HST. Bruce Bartlett, a former Treasury Department economist (yes, we former national finance ministry economists have to give shout outs to our kind at every opportunity), has done some great work on this, noting that "the VAT is probably the ideal tax from a conservative point of view." Bartlett addresses the sort of argument advanced by the Economist in this New York Times piece:
Those countries that adopted the value-added tax since the end of the great inflation, however, have been very restrained in raising rates....
me and other conservatives [have] conclude[d] that starving the beast simply doesn't work anymore. Deficits are no longer a barrier to greater government spending. And with the baby-boom generation aging, spending is set to explode in coming years even if no new government programs are enacted.

Bringing the HST to Alberta by using it to fund a serious chop down in the statutory corporate rate (say, from 10% to 2%) would be opposed by the usual right-wing suspects who would demand that a tax cut not be accompanied by a tax increase in another area. But these people are penny wise and pound foolish because if revenues are not raised through a consumption tax they will inevitably be raised by taxes that attack investors and will be far more harmful to the economy. We've already seen this happen with stubborn resistance to a national carbon tax (which would have gone after consumers and thereby been paid by Canadians across the country) having led to a legion of calls for inefficient producer-whacking measures (which would disproportionately hit Albertans because the producers are here), not to mention colossal boondoggles like billions for carbon capture schemes.

Once the sorts of studies that were done of investment and price levels in Atlantic Canada post-harmonization have been published with respect to BC and Ontario, a December 2009 decision by Michael Ignatieff's Liberals to support the government's HST enabling legislation may be remembered as the day their party dodged a bullet.

Wednesday, November 25, 2009

"pouring gas on the fire"

Can a tweet be used as a Rorschach test?

Just saw da premier making a speech. Dat was quite a speech. Dem media better report it right.

Is the above
A) a light-hearted and lightly deliberated jab at Alberta Premier Ed Stelmach's notorious butchery of the King's English and his claims of media bias
B) an insult directed at Ukrainian Canadians
C) an insult directed at Edmontonians courtesy of "Calgary oil execs"
D) both B and C

According to Paula Simons of the Edmonton Journal, the correct answer is D.

Now perhaps no one should be surprised at Ms Simons' perspicacity here. After all, there are plenty of people who (at least claim to) see the malign agenda of corporate interests at work in the most banal of headlines. But surely when Simons subsequently fires an accusatory tweet off to (not even the original tweeter but) Wildrose Alliance leader Danielle Smith for "pouring gas on the fire" of intra-provincial tribalism, even we Edmontonians realize that we have received one too many invitations to take umbrage at Premier Stelmach's political competition.

It was Ed's partisan people who invited the media to make an issue out of a remark by someone who had a small handful of Twitter followers and conclude that although the premier himself is the very picture of magnanimity, Ukrainians as a people would be remiss to let this "offensive Twitter post" just slide quietly into the forgettable and forgivable realm of the deleted and apologized for. In a display of their skill in media relations, the premier's office easily advanced simultaneously the contentions that there was an insult, that it mattered, and that is was directed at both the premier personally and at an ethnic group. These political pros, however, knew that they would have overplayed their hand to further suggest the Edmonton-injuring machinations of some Calgary cabal behind this tweet. Having actively campaigned as a politician myself last year, I am more than aware of how unconscious people can be of when their buttons are being pushed by the peddlers of identity politics, but Edmontonians might well be too worldly-wise to not ask themselves if Ms Simons shouldn't be directing her "pouring gas on the fire" finger wagging at the mirror.

For months now the Edmonton Journal's unsigned editorials have been beating the war drum about the impending threat to the tribe presented by "downtown Calgary" types who look down their noses at a premier who hails from the Journal's market. It would not surprise me to see these same unnamed editors in the future lament, with no sense of irony concerning what has been previously featured in their pages, that too few provincial politicians tweet or blog anything but the most guarded and spin-cycled material, never mind their staffers!

NOTE: I do not wish to suggest that the correct answer to the my opening hypothetical is simply "A". I agree with Danielle Smith that the tweet was "stupid." But there were elements of "A" here that seem to have gotten short shrift in the rush to judgmental judgment. If I had detected a belligerent streak in Stephen in my limited dealings with him to date, I would not take exception to the media picture of an uncurbed attack dog that has emerged of him. But I didn't. When someone is reasonably expected to be in the headlines routinely, an accurate picture can generally be expected to emerge as media stories written from a variety of perspectives accumulate. When someone is known for just one event or for a short period of time, however, distortions are more of danger. While I question the judgment of the party leadership re not approaching Stephen's past business associates to ask them if they thought "the accounting is just an absolute mess" before Stephen was a put on staff and, more precisely, before a Globe and Mail reporter asked, there is more to Stephen Carter than 140 characters. He has apologized, resigned, and on top of a week of negative publicity he is facing a financial crisis. Leaving aside his business dealings, which I am not in a position to come to a conclusion on, I hope that he finds honourable success in his future endeavors.

Sunday, November 22, 2009

the top story of Alberta this decade: the "Fiscal Responsibility Act"

Daveberta is asking what "exciting" event from this first decade of the 21st century might be talked about in Alberta history books 30 years from now. In my view the top story, or more accurately the low point, of the province these past 10 years has been the sorry saga of the mis-named Fiscal Responsibility Act. I'll grant that this particular tale does not come with any exciting moments. If it did, perhaps government fiscal policy, or more precisely the lack thereof, might have captured the interest of the public such that, if the story had occured at all, it would have had a happier ending.

Section 2 of the Fiscal Responsibility Act declared that there would be "no deficits" in Alberta. It also came to require that at least SOME natural resource-related revenue be saved over the course of a cycle. But the provisions of the statute were ultimately ignored every time they actually threatened to constrain government spending. In March 2004, the P"C" government of Alberta amended the Act to raise the point after which resource revenues had to be diverted to the Sustainability Fund from an already high $3.5 billion to $4 billion. It was neither the first nor the last time that the province's financial assets got the short stick. In May of 2005 the constraint was lifted from $4 billion to $4.75 billion, and in May of 2006 up to $5.3 billion.

Colin Busby, an Albertan and a policy analyst at the CD Howe Institute, noted in May of 2008 that Alberta needed "aggressive savings targets" and that “[f]ailure to meet this target will lead to a permanent decline in fiscal capacity this century,” without addressing the fact that the Alberta government had repeatedly proved an unwillngess to abide by even mild savings targets.

In 2009 the charade finally came to something of an end and the Fiscal Responsibility Act was repealed. The Act's flagship clause had specified that "actual expense for a fiscal year shall not exceed actual revenue for that year." While the continual amendments had already made a mockery of the legislation, the government realized that amending the flagship clause to add "plus any amounts allocated from" savings funds would gut the law so blatantly that any further legislation on the point had better be delivered in an entirely new package. Thus was the "Fiscal Responsibility Act, S.A. 2009" born. Dave Hancock said the 2009 moves provided "for a more flexible fiscal framework" without explaining why the old Act was introduced in the first place if "flexibility" is a goal.

The moral of this story is not, or not just, related to the observation of the Director of the U of Alberta Institute of Public Economics that "[h]ad this savings/expenditure constraint remained in place, Alberta's expenditure levels would be about $28 billion annually - not $36 billion currently." It's that Albertans tolerated symbolism over substance for years, either out of a populist predilection to take umbrage only at visceral concerns or out of a lack of enthusiasm for political engagment. Instead of behaving as a trustee or agent of Albertans, the government dealt with savings funds that could have monetized the province's natural resource wealth for the benefit of future generations as if it were the owner.

During his tenure as Liberal leader, Kevin Taft noted the refusal of the P"C" government to "rein in their massive spending" and described them as, in fact, "addicted to spending." "The Tories in Alberta are spending 23 per cent more than the average of other provinces," observed the Liberal. In January of 2008, NDP MLA Ray Martin said, "with all the spending they've been doing, I don't think the budget is going to be pretty." Less than two months later Martin was voted out of the legislature in favour of a PC candidate.

Friday, November 20, 2009

why not propose a cut on investment taxes in isolation?

There are two main reasons why I raised the issue of tax reform in my last post as opposed to just tax cuts. The first is general and strategic while the second is relatively technical and economic.

Fiscal conservatives should not be proposing tax cuts without doing so in tandem with proposals for either how the tax revenue loss can be made up OR specific program spending cuts. While spending cuts is the preferred route, the political reality is that when the government steals from Peter (the taxpayer) to pay Paul, possession is effectively nine tenths of the law meaning trying to claw an "entitlement" back from Paul after he's got it is a far more difficult negotiation (and much of politics is a negotiation) than working towards a structure that doesn't see every last request of Paul indulged in the first place.

Some US Republicans have latched on the Laffer curve to contend that tax cuts pay for themselves, and while that can be true with respect to some capital taxes (capital generally being quite willing to move to the most competitive jurisdiction), it is an overstatement with respect to income taxes ("dynamic scoring" is a more precise way of acknowledging the fact that the new incentive for economic activity post-tax cut will bring SOME of the revenue loss back to the treasury) and pretty much simply misleading when mentioned in the context of a proposed consumption tax cut.

I realize that the "starve the beast" argument exists, but this line was thrown out repeatedly while the GOP ruled the roost in Washington and last time I checked, the belly of the Beltway beast was bigger than ever. Deny the beast its tax revenue and the beast's agent may just go out there and sell debt.

Fiscal conservativism needs to be coupled with some cultural conservatism that appreciates the self-indulgent reality of human nature. Economists sometimes talk about how wages are "downward sticky." When business conditions cycle downwards, wages typically do not go down in tandem with the revenues of employing corporations. The same applies to government spending, such that creating a consensus around program cuts is like herding cats. It follows that a conservative agenda would put a stop to the "step up on the wave peaks" strategy of government expansion by demanding measures that would reduce the volatility of government revenues. Moving towards a flatter tax structure and replacing the taxation of investment returns with a broad-based value added tax would help substantially in this regard, with the clincher being a hedging program.

Advocates who are not prepared to cut programs FIRST and THEN cut taxes should not call themselves fiscal conservatives, because all they are typically doing is calling for deficits and leaving it to the next generation to show true fiscal conservatism. "Starve the beast" is akin to the notion that the best way to get people with massive credit card debt to be fiscally responsible is to cut their salary. The people who think that this would actually work have an optimism about our capacity to act rationally and responsibly that I would not characterize as conservative.

re the second reason, allow me to introduce Alan J. Auerbach. After completing his PhD in economics at Harvard, Auerbach served as a Research Associate at the National Bureau of Economic Research and was Deputy Chief of Staff to a U.S. Joint Committee on Taxation in 1992. He's also a former Chair of the Economics Department at UC Berkeley and is currently Professor of Economics and Law at Berkeley while serving as Director of the Burch Center for Tax Policy and Public Finance. Auerbach has written extensively on taxation, but of relevance here are his observations in the Wall St Journal:

... eliminating capital income taxes would do the opposite, providing a windfall to owners of existing assets. Such a windfall would not only lower progressivity... but would also substantially reduce potential growth effects.
Providing windfalls to existing capital costs lots of revenue. The revenue loss could be made up only by higher taxes on future labor income, which would reduce incentives to work.

The idea here is that if, for example, we just announce that taxes on capital gains are to be eliminated, everyone tax-resident in the jurisdiction would prepare to sell their old capital assets to buyers outside the jurisdiction and consume the proceeds in the consumption tax-free environment that continued following the introduction of the capital gains tax relief. Capital income tax relief thus has to be implemented as a package deal with a consumption tax change.

Auerbach goes on to note that "A consumption tax could increase GDP substantially in the long run."

Wednesday, November 18, 2009

Alberta: land of the saver or the spender?

There was a time when the business tax environment in Alberta was one of the most competitive. Sadly, that is increasingly no longer the case, as other jurisdictions continue to modernize their tax regimes.

The latest edition of KPMG's annual International Corporate and Indirect Tax Rates Survey finds that Canada has the 5th highest corporate tax rate among the 30 OECD countries in its survey. The high corporate rate represents North America's populist disdain for the international trend towards lower business taxes and higher consumption taxes. The combined GST-PST rate in Alberta is just 5%, in contrast to an average VAT/GST rate in the OECD of 17.6% and 19.8% in Europe. It's thought that a 13% combined federal/provincial VAT in Alberta (representing a provincial take of 8%) would allow the province to not only cut its corporate rate from 10% to 5%, but cut the personal income tax rate from 10% to 5% as well. In Europe, average corporate tax rates fell every year between 1995 and 2008.

A year ago, the OECD noted that
After 25 years of gradual increase during which tax revenue from consumption taxes increased by about 4% of GDP in OECD countries, the proportion of general consumption taxes as a % of total taxation is now stabilised at around 18%. The introduction of VAT/GST as part of the tax reform process is to a large extent responsible for this, VAT/GST is now in place in 29 of 30 OECD countries. Specific consumption taxes like excise duties also have an important role to play not only as a means of collecting revenue but also as an instrument to influence consumer behaviour and, increasingly, as part of wider attempts to protect the environment. ...
No other tax innovation has spread so widely or rapidly as the VAT. In half a century it has been adopted by more than 130 countries. VAT has become the most widespread general tax on consumption demonstrating its potential to raise tax revenue in a neutral and transparent manner. The United States remains the only OECD member country without VAT...

The decision to invest is highly sensitive to the rate of return generated by the asset. Taxes imposed on businesses affect the rate of return and hence the amount of investment undertaken. While the statutory corporate income tax rate is an important indicator of how the tax system is affecting investment, it is not a comprehensive indicator. The marginal effective tax rate (METR) provides a more complete picture of the impact of the corporate tax system on the decision to invest. As one can see when clicking on the Finance Canada chart below, unharmonized PSTs (that is to say, provincial sales taxes that have not been not transformed into a value added tax like the GST) can add considerably to a jurisdiction's METR:

Elizabeth Beale, president and CEO of the Atlantic Provinces Economic Council, has noted that "There's been clear gains on the investment side and the benefits flow through to consumers," from harmonization. "It's hard for consumers to see that because, of course, they're paying a higher level of tax at the front end." In populist Alberta, when taking investment tax credits into account as well, the tax environment is quite unspectacular relative to the rest of the country and the US:

A 5% reduction in the provincial corporate rate, or better yet 7%, would make a substantive difference in Alberta's attractiveness to international investors, and if this tax relief were funded by the introduction of a provincial VAT (a harmonized PST), domestic consumers would also be encouraged to invest instead of consume, thereby contributing to the capital stock that could eventually be bequeathed to the next generation.

In March 2006, Dr Jack Mintz put the Calgary Chamber of Commerce on notice that given "continued spending at these growth rates in the next decade, Alberta will be facing a deficit by 2010".

Mintz also noted that

While Alberta might think it has a competitive business tax system - that is not the case. In the world's eyes, Alberta is far from being a tax haven for non-resource investments, which undermines the provinces ability to diversify its economy. Further, with high corporate tax rates, businesses shift their income from Alberta to low-tax jurisdictions outside Canada...

This is, of course, not the first time I've referenced Dr Mintz. During the 2008 provincial campaign (supposedly the worst time to discuss "serious issues", according to some), I noted that in 2007 Jack Mintz had observed that

[c]orporate income taxes continue to be a major source of inefficiency and unfairness in the Canadian tax system... Canada could reduce corporate income tax rates, possibly increasing revenue or at worst losing little. Compared to any other business tax policy, this is a "win-win" proposition--both government and the private sector would be better off. ... As first order of business, Canadian and provincial governments should reduce corporate income taxes.

Tuesday, November 17, 2009

blogging internally

These past few days I've deprived Albertans and the public in general of my wit and wisdom as I've been directing my screeds at various Wildrose Alliance personalities who, in my infallible judgment, could do with some instruction and improvement faciliated by none other than the redoubtable Brian Dell, Expert of Everything and Authority on All. Satisfied that I've made appropriate efforts to edify, enlighten, and inform my political colleagues I hope to return to throwing my pearls of wisdom before the general reading swine later today or tomorrow.

There are a number of conditions under which political movements start to unravel and one of these is when members stop listening to each other. Obviously people will not always agree. But if they are listened to with an attention appropriate to objective measures of how evidence- or argument-backed and non-self-serving their opinions are - as opposed to how influential they just happen to be - most people can live with that regardless of the result. When people start leaving is when they feel their views are not being fairly considered. Another condition under which the ties that bind may fray is when some people's egos get too big. I, of course, am too humble to ever create that sort of problem!

Wednesday, November 11, 2009


Earlier today I attended the Remembrance Day ceremonies at the Edmonton Kingsway Legion (photos above). Laying a wreath on behalf of the province were MLAs Peter Sandhu and Laurie Blakeman. Laurie's husband Ben Henderson represented the city, while the son of federal MP Laurie Hawn laid a wreath on behalf of Ottawa. I approached Peter Sandhu mentioning that I grew up in his riding, and he is probably a good constituency guy, clearly adept at handing out lots of business cards. I also chatted briefly with Henderson, who makes a good first impression, as he left with his wife.

It's been a long time since I did my basic training, as this photo of me to the right in the old style fatigues attests. I did not originally plan to attend the U of Alberta, since after some time in the reserves I had my heart set on military college. But when I failed the eye exam for military college, I not only had to find another university, I couldn't rejoin my unit, 8 Field Engineer Regiment, as I was advised that I really shouldn't have been admitted in the first place to 8 FER and with the transfer of decision making about the matter from the unit to Canadian Forces HQ, my military career - such as it was - was over.

I nonetheless continued to enjoy hanging out with the guys, and in fact have recently been living off and on in a multi-room home used by current and former 41 Combat Engineer Regiment members (last year Edmonton-based 8 FER was disbanded and Edmonton-based sappers amalgamated with Calgary's 33 Fd Engr Sqn to create 41 CER). The unit's mascot, Sapper Bentley F Beaver, is pictured below right manning the C6 while on deployment in Kandahar province.

Last year's Remembrance Day, which I wasn't in Canada for, was significant for the unit. 41 CER reservists who volunteered for Afghanistan had joined the regular force 1 Combat Engineer Regiment to serve as part of Roto 5 of Operation Athena. A number of personal friends of mine were deployed, including CS, MB, Johnny P, and Jimmy P. At 1030 hrs on 20 August 2008 MB became aware that somebody had been hit since the internet was blocked on a coms lock order. The communications lock-down gives the military time to notify next of kin. Since MB happened to be tasked to the operations building at the time, he was able to see the preliminary message that noted the hit vehicle's call sign and 3 KIA & 1 PRI A CAS. Since MB could tell that it was Jim's vehicle, which was on a route survey operation, he knew that Jimbo had been hit, although there was still a good chance he was alive at that moment since Jim was quite probably the only guy in the back. Typically, an IED blows under the driver, since although insurgents can set a pressure plate further down the road from the charge, that's a more involved process they don't typically bother with. The other 2 KIA were probably half in the turret which sometimes shears off depending on the nature of the explosion, as proved to have been the case here. As it turned out, Jim was indeed alone in the back and was likely saved by the fact the deployment door blew off, dissipating some of the force. But as a priority A casualty the military deemed Jim to be in serious condition. MB knew that, having seen that identification typically followed up in the past by a VSA (vital signs absent; in ordinary English: dead) within an hour. When MB learned where the injured soldier was being brought, he rushed out of the ops centre in order to see Jimmy for what might end up being the last time. Although Jim was not conscious anyway, MB's thinking was that if he were in Jim's position and about to go, doing so in the presence of a long time friend instead of a bunch of strangers might be some small comfort. MB was later reprimanded for acting on information that was supposed to be contained within his comms group, but of course some rules are made to be broken.

Although Jim has not made a 100% recovery, when we were in Vegas this past May he was walking around with us. We had to walk slowly to enable him to keep up with us, but he was getting around with a body that was still all-Jim. When Americans asked him why the part of his leg that they could see below the pant leg appeared to be injured, he'd say he had a run-in with a hive of bees. Fact is, the guys are not eager to talk about the bad things that happened over there with the public generally. I only mention it here because I am really just a hanger-on as opposed to one of them. At the end of August 2005 I met up with CS and some others in Ortona, Italy, for an unveiling of a memorial related to the Battle of Ortona, one of the most ferocious WWII battles for the Loyal Edmonton Regiment and the place where 1375 Canadians were killed over 8 days. You can see here some of the photos I took in the town. In the evening 7 of us ran up a tab at an Ortona restaurant and when we attempted to pay the bill we were advised that the bill would not be coming as it had been taken care of by another table. A couple of us exchanged a look with the Italians at the other table and no words in Italian or English were necessary as it was already clear that going over there to thank them for picking up the tab would have been inappropriate since they wanted it to be a thank you to us, as representatives of the Canadians who had been there more than 60 years earlier. I felt a bit of an imposter since I was really just a tourist who had teamed up with friends, friends who had been sent over to represent Canada.

The pleasant reality today is that Canadian military personnel are held in great prestige by their countrymen. When Johnny P's wife, who is a NDP organizer (CS and MB happen to be Wildrose Alliance organizers in the Edmonton area), was introduced to a union audience as the wife of someone currently serving in Kandahar, she received a welcome that would have embarrassed a hero, an illustration of how affection for the troops is non-partisan and heartfelt, regardless of one's view of the Afghanistan mission.

I'm happy CS, MB, Johnny and Jim made it back, and not just because after he came back Jim gave me a nightstand and dresser for free that are with me in this room as I type! He's a long time friend, and it would have been difficult to deal with losing another guy when the unit had just lost someone else, someone else I had hung around with, to suicide just a couple years back. The way the government has dealt with the Jim's situation, being caught in a limbo between being not quite being able to return to his job that required full mobility and being not quite fully disabled, is in need of considerable improvement. But he has the same redoubtable attitude he did before; he swears that if his mother-in-law stays with him and his wife more than a month he is going to put in for another tour! I'm not happy that life's journey has come to an end for the other 3 guys in Jim's vehicle on that hot August day. It's not that I carry the candle for them; - I'm not really entitled to as I was never there. More than a year after it happened, CS and the others continue to wear a yellow bracelet day after day marked with the names of the three. For our veterans, Remembrance Day occurs 365 days a year. Although none of us knew SGT Eades, SPR Stock and CPL Wasden really well, they not having grown up in the Edmonton area despite 1 CER being based here, today this current civilian would nonetheless like to acknowledge the service of these three engineers. You are remembered and you are missed.

UPDATE late 11 Nov:
I took a couple photos after enjoying the company of CS and Jimbo this evening. It was a rare opportunity to catch them in full dress. The Americans give out a Purple Heart medal and Canada just grants a bar on the lower shirt sleeve (left)? You'd think it was a paper cut. I also took a snap of CS' wristband (right). Earlier this year CS showed me a bit of Taliban webbing. It had verses from the Qur'an written on it in Arabic. I pressed him for information about how he obtained it but he said only that the party who was relieved of the item of wouldn't be needing it any more. His wife insists that the item be kept in the garage as opposed to the house lest bad juju descend upon the household.
When you're wounded and left on Afghanistan's plains...
- Rudyard Kipling, 1895