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.