Friday, August 28, 2009

Calgary polls

While one would think that this past week's news of a record provincial deficit would revive questions about the propriety of the pay raises the Alberta cabinet gave itself last year, the response we've seen instead from some quarters is a call to diversify the provincial economy. This suggestion avoids the fact that it is, in fact, a lack of diversity in government revenue sources that, combined with an inability or unwillingness to prudently manage revenue when it is abundant, is driving the deficit. A government program to diversify Alberta's economy into, say, banana growing would not be sound policy; if we have a comparative advantage in a particular area, basic economics argues that we should continue to exploit it. Instead of drawing revenue from a diversified source and taxing the economy at the broadest, least distortionary level (with, say, a provincial VAT), the Stelmach government has done the opposite and tried to increase royalties, increasing dependence on the most cyclical revenue source of all. The province has additionally kept general business taxes, which are also very cyclical, relatively high. This when business is ahead of both government and households in terms of propensity to invest.

A Macleans story says that according to ENMAX chairman Thompson MacDonald, the Wildrose Alliance is "too far to the right to appeal to disgruntled Tories." While this may indeed be the perception, the reality is that Alberta has the most fiscally liberal government in North America. While there are others who sport bigger deficits, I should hope that by now it's become obvious that whether or not a government is in deficit is a poor metric of its fiscal conservatism. The proper standard is its level of spending. Another jurisdiction with a higher income tax rate is more conservative if that jurisdiction does not enjoy windfall royalty revenue such that its spending per person is lower. What matters are the decisions that are taken in the context of scarcity. Are calls to get provincial finances in order truly "too far to the right" for Alberta? With respect to this question, I might also refer to Link Byfield's observations:
On actual policy there is almost no difference amongst all three leadership candidates -- nor can there be, because like the Reform Party of yore, policy is controlled by members, not the leader. But policy alone will not get the Wildrose Alliance elected. We will succeed (or not) on the credibility of our leader and on the caliber of candidates she can recruit. That's why I and most of the social conservatives I know are backing Danielle Smith.
In other words, how can Thompson MacDonald know that "the Wild rose Alliance isn’t going to change [the] equation" in the future?

The Hinman campaign has commissioned Dycap Research to poll Calgary Glenmore and has found that the Wildrose Alliance is running at 19% in the riding. Given that Ipsos announced on August 26 that the PCs were at 43% Calgary wide, with the Liberals at 23%, the Wildrose Alliance at 11%, and New Democrats at 5%, one might be inclined to think that 19% in Glenmore is too high an estimate. After all, the party drew 8% in Glenmore in the 2008 provincial election and the Alberta Alliance pulled in less than 5% in 2004. But 15% is within the realm of reason and 19% wouldn't be very far off the margin of error. The same Dycap poll revealed a drop of 12% in PC support since June, meaning that the recorded 7% gain for the Wildrose Alliance over the same time period is entirely plausible. Wildroser Danielle Smith has received a lot of media attention these past two months, and, as Lorne Gunther noted in the Edmonton Journal on August 16, "Smith has a deeper, subtler and quicker grasp of policy alternatives than has been exhibited by the entire Tory cabinet, combined." The PCs will take Calgary Glenmore again (they reeled in more than 50% of the vote last year), but if they do so this time with less than 35% and the Wildrose Alliance gets 15% or more (tripling the Alberta Alliance share of 5 years ago and then some), it will suggest that the WAP will be a real player in the next province wide campaign. 15% is within striking distance of 20%, and 35% support has been known to slump to less than 30%.

Saturday, August 22, 2009

That which we call a rose

In 2004 Avalon Roberts unsuccessfully attempted to push Stephen Harper out of his seat in Ottawa, taking 18.4% of the vote in the riding of Calgary Southwest while running under the federal "Liberal" banner. Given that the Liberal vote share in this urban (!) riding slumped to less than 10% in last fall's federal election, it would surely be an odd outcome if Calgary Southwest voters in Glenmore were to send the same Avalon Roberts to Edmonton as a "Liberal" MLA in 2009.

It should thus come as no surprise that it is not the damning "liberal" tag but the redeeming "conservative" label that is of recent blogger interest in the context of this byelection. As an aside, I will note that the Enlightened Savage proved his chops as a PC party player with this latest blogpost of his, not least because of the apparent alacrity with which he and/or Ken Chapman moved to scrub their Twitter feed histories after Chapman outed the anonymous "Savage" by tweeting congratulations for the blogpost to the Twitter account which the E.S. holds under his real last name. Given the Stelmach government's affinity for the timely and judicious suppression of information, perhaps the Hansard will soon record a government MLA again pointing out the presence of our anonymous blogger in the Leg gallery and calling on the "the House" to give our pleasant PC party partisan another well deserved "warm welcome"! The "Nation" now anxiously ponders the question of whether the Enlightened but Unilluminated Savage will follow the example of TinyPerfectBlog and consign his blog to the coffin out of fear of exposure.

But as revealing - or not - as this little incident is, let's turn our attention to another anonymous PC blogger: "Shane" at CalgaryRants. Shane's latest charge against the Wildrose Alliance is that some of its supporters have stooped to "McCarthyism" by "trying to make [PC Calgary-Glenmore candidate Diane Colley-Urquhart] come off as a CARD CARRYING LIBERAL". The received wisdom, of course, is that liberals don't go to heaven. In all 50 US states more people self-identify as conservatives than as liberal despite the fact Democrats have significant party ID advantages in 30 states and Republicans in only 4. While some recently departed "liberals" may be found climbing Mount Purgatory, "LIBERALS" are not to be found this side of the Stygian marsh, and for the card carriers among these are the greatest torments reserved, befitting their place in the ninth circle of Hell.

The first thing that's odd about the Ranter's charge is the fact that the offending Senator McCarthy was not a private citizen. He was a public office holder and member of a government committee with a name that many who were subject to its investigations would be inclined to introduce scare quotes to, to wit, the House Committee of "Un-American" Activities. Is it possible that in a blinding fit of enthusiasm for the Colley-Urquhart campaign our PC Party volunteer could have confused some private citizens expressing concerns about a public office holder and member of an investigative government "rights" commission with, say, public office holders and members of investigative government "rights" commissions? What should we make out of the fact that the president of a foundation named after a "Liberal" Calgary MLA has also made an issue out of "human rights commissions’ censorship"? Our Calgary Ranter seems to regard such attacks as peculiar to those on the political "fringe". Supporters of the "George Bush like WAP" (to use Ken Chapman's loaded label term for the Wildrose Alliance party) may wish to let the first Executive Director of the Alberta Civil Liberties Research Centre respond to this assumption of fringiness:
The Alberta legislature recently confirmed the provincial commission’s jurisdiction over offensive speech, but [Chief Commissioner of the Canadian Human Rights Commission Jennifer] Lynch notes 'not without a chorus of ‘boos’ from the far right.' The Chumir Foundation, other organizations and individuals presented carefully constructed arguments against Alberta’s hate speech provision. It is disrespectful to dismiss our reasoned objections as 'boos' or to comment on the Alberta debate without adequate knowledge of it.

The second thing that's odd about the charge of McCarthyism is that it is being leveled by a card carrying "Conservative" (I'll be seeing you in the seventh heaven!) in a post-VENONA world. As Harvey Klehr noted on PBS NOVA:
It's unfortunate that Venona was not made public much earlier. Certainly for the last 30 years or so we've had fierce debates about McCarthyism, for example. The extent of the Soviet danger, I think, would have been a lot clearer had Venona been made public. I think a lot of the bitterness and rancor in American political life might have been avoided had we known the truth.

Tuesday, August 18, 2009

race on for Calgary Glenmore

It appears that Travis Chase nailed it with his July 24 prediction that this byelection will be held on Monday, September 14. This is an example of good blogging; instead of just adding to the wave of opinion and political attacks that emanates from the blogosphere, in this case Travis seized on an overlooked government document and drew an inference from it that less politically experienced people might not have been able to make.

CalgaryRants also blogs helpfully in that he corrects a Calgary Herald story which claims that just "slightly more than a dozen supporters" showed up for a rally at PC candidate Diane Colley-Urquhart's campaign headquarters by stating that, in fact, "30-40 supporters" attended this "spirited affair." On the other hand, perhaps it is the Herald that is correcting CalgaryRants' claims given that the Herald story came out later! The informative value of CalgaryRants' blogpost might alternatively be this federal Conservative's exhibition of enthusiasm for the redheaded provincial PCer despite her service on the Human Rights Commissions which have interrogated right wingers for daring to cause offence by speaking freely and her saluting the "good work" of the Pembina Institute after Dan Woynillowicz went to Ottawa on behalf of Pembina in 2006 to tell the feds that they ought to be cracking down on Alberta. While it is one thing for a federal Tory supporter to fail to support the Wildrose Alliance, it is another to be enthusiastically volunteering to campaign against us. While this is just one data point, it does not bode well for the prospects of attracting disaffected PC voters.

The good news may be that the Enlightened Savage has honoured the Wildrose Alliance candidate, Paul Hinman, with a mocking attack that featured use of the most devasting rhetorical weapon available to a wordsmith, namely, spelling out the word "shame" in all caps and with 11 letter "A"s. Given that Liberal candidate Avalon Roberts is just as deserving of being painted as a "caterwauler", our anonymous PC pundit must feel that Hinman has a legitimate shot at 2nd place after his heavily favoured candidate, an outcome that I think would be huge win for the Wildrose Alliance given that the Liberals pulled in more than 4 times the votes that the Wildrose Alliance did in Calgary Glenmore last year. Aside to "strategic voters": the PCs nonetheless took this riding last year by a margin over the Liberals that more than doubled the vote of the Wildrose Alliance; there is accordingly little reason to fear Avalon Roberts "running up the middle". You can "send Ed a message" while the rest of your neighbours send Ed another reliable Leg vote (not that he really needs one).

In terms of the September 14 date, while it is true that a lot of people won't be paying attention to the August component of the campaign and it would have helped total turnout to hold the election during the days of media coverage following October's Wildrose Alliance leadership convention, it isn't necessarily bad for the opposition, with my evidence for that simply the fact that with respect to the 2 polls (out of 66) that the opposition won in 2008, for both of them turnout was lower than average for the riding, Avalon Roberts taking Cederbrae A 67 to 65 on a 36.3% turnout and Southwood A 43 to 34 on a measly 17.1% turnout. That said, since Avalon Roberts is the type of candidate who appeals to the reliably turning out older voter, she might be the only opposition candidate likely to profit from a weak turnout.

My one piece of tactical advice to Paul is to identify the mobile poll(s) and get in there. When the poll is essentially being brought into your living room, it is pretty easy to turn out! The PCs crushed this poll in Glenmore last year taking more than 3 times the combined vote for all others. They did the same thing last year in my Beverly Clareview riding, bringing Stelmach into the riding one afternoon to visit a large seniors home and then taking the poll in a landslide. As I noted near the end of the campaign:
Earlier this week, I called the Emmanuel Home (for seniors) and asked if I could come by some time to meet the residents. "You should contact the Recreation Director instead of just dropping in". Fine. How about Saturday? "The Recreation Director is not available Saturday." Anytime Friday will do. "The Premier is going to be here Friday". I could come before or after the Premier, whatever you think is more appropriate. "Uh... leave a message with the Rec Director and maybe she can do something for you." I left a message with my contact info and have never been contacted. Meanwhile, the RO (who, by the way, is a P"C" party man by his own account, which may go to some length in explaining why he not only refuses to give me official donation receipts and maps that taxpayers have already paid for and the other candidates already have but refuses to pass on to Elections Alberta this candidate's feedback that that particular decision should perhaps be reconsidered next election) is sending a mobile poll into the Emmanuel Home on Monday, the very place that apparently only the Premier can enter.

Monday, August 17, 2009

behind the curtain of Canada's legal system

This past weekend the Federal Court of Appeal ordered the Harper government to ask the Americans to release Omar Khadr from Guantanamo Bay because Khadr's Charter rights had been violated. Is there a reason why no one is asking about the political leanings of the judges on the FCA?

The previous weekend Sonia Sotomayor was sworn in as a justice of the United States Supreme Court. Even in Canada, one would have had to have been living under a rock to not have heard of her and that there there was a political debate associated with her nomination.

Whatever Sotomayor's judicial activism may have been, it was dwarfed by that of Supreme Court of Canada Justice Claire L'Heureux-Dubé, who was appointed by Brian Mulroney in 1987 and who retired in 2002. Robert Ivan Martin, a former Canadian artillery officer, NDP candidate, and professor of law at the University of Western Ontario, has described L'Heureux-Dubé's tenure on the SCC as a "national disgrace". Yet how many Canadians have ever heard of her? During my time at the University of Alberta Law School, I was astounded at the lack of debate over this feminist ideologue's preference for judging on the basis of social science studies that she (or, more precisely, her clerks) had dug up and had not been introduced or developed in the lower court trial proceeding. Who needs to study the law or the facts of a case when sociologists are there to tell you who is the oppressed and who is the oppressor?

The sad fact is that, in marked contrast with the transparency that exists is the US, the legal community here is actively engaged in suppressing inquiry that might make a Canadian judge an object of controversy. In June, an American researcher was blocked from making the same inquiry about the inner workings of the Supreme Court of Canada that he had successfully made about the US Supreme Court. In March, two professors attempted to contact several hundred lawyers to ask their perspectives on the competency and biases of various judges in Canada but “[a]pprehension [was] running high that the results could be used to discipline or discredit judges whose leanings on controversial criminal law issues or the Charter of Rights run counter to the conservative philosophy of the Harper government." The McGuinty government accordingly told its prosecutors to not participate in the survey and a number of provincial law societies (lawyer guilds) also opposed the academic investigation.

What is remarkable about this excuse for opposing transparency is that Harper's government, like Mulroney's, has not been appointing conservative judges. It is accordingly the "conservative philosophy" of the ordinary public that is seen as the real threat. The Harper government appointed Russel Zinn, whose left lean was strong enough for him to confuse the very much alive and well Abu Sufian Abd Al-Razziq with the dead by describing him as "as much a victim of international terrorism as the innocent persons whose lives have been taken by recent barbaric acts of terrorists." Zinn had been advocating for "human rights" for many years in the less-than-obviously-related field of labour law prior to his elevation.

Justice Zinn declared in the same decision that "[t]here is no reason to challenge the applicant’s assertion in his affidavit that he was tortured while in detention." This is simply false, and while the reasons are legion, one could start with Abd Al-Razziq's October 2008 cross-examination on an affidavit that he swore to in June of that year. Unfortunately, the only place on the internet where I'd found an archive of primary sources related to Abd Al-Razziq (I'm not a practicing lawyer and don't have Quicklaw/LEXIS access, etc) was on Osgoode Hall's web server. Which would be fine, except that after I sent the following e-mail to Hazel Pollack on July 30
Reportedly French antiterrorism agents interrogated Abdelrazik in Sudan and French judicial documents state that Abdelrazik is an important Islamic Jihad activist who is close to [Abou] Zoubeida [aka Abu Zubaydah].
I have not been able to locate any French sources to this effect. Are you aware of any? Thank you,
Brian Dell
my e-mail was ignored and, more importantly, the archive was removed from the website [UPDATE: since I posted this it has reappeared]. Hazel Pollack was cited as the contact person for the web archive and is an "assistant" to Craig Scott, whose political leanings should be pretty obvious from his biography [UPDATE: listed contact is now Professor Sean Rehaag].

Although the material is no longer available (because Professor Scott realized it would not square with the story the MSM has been spinning about Abd Al-Razziq?), I had made a few notes after taking a look at the 2008 cross, which is just one of the documents submitted by the Minister of Foreign Affairs. For starters, Abd Al-Razziq is on record stating that he lied to both Canadian interrogators and the FBI about intending to go to Chechyna. He was originally admitted to Canada as a refugee from Sudan but his associated claims about what would happen to him should he return while the same regime was in power ought to be, shall we say, rather suspect given that not only did he voluntarily return to Sudan in March 2003, he abandoned his wife, his children, and a pregnant mistress (Lisa Lebrun) in Montreal to do so. When, during the cross-examination, he was asked if "Myriam [St-Hiliare, your wife in Montreal] was fine that you had had a child with another woman?" he declared, contrary to all probabilities of human nature, that she was. Abd Al-Razziq then married yet another woman in Sudan in 2004 and had a child with her in 2005. I don't know who he thought he was kidding when he then proceeded to falsely swear in 2008 that "all my children and stepchildren remain in Canada".

Abd Al-Razziq never bothered to get a regular job while free in Sudan (or in Canada, for that matter) despite having spent the first 28 years of his life there, saying this was because of Sudanese intelligence. However, an equally plausible reason might be the fact that Canada provided him with $500 worth of support each month while he was seeking refuge in the Canadian embassy in a country where the median annual income is $800. More telling re Abd Al-Razziq's credibility was his inability to keep his story straight during his cross-examination. To take one example of many,
Q. Now, Mr Abdelrazik, if we can return to April of [2008], I understand you met with a journalist from the Globe and Mail?
A. A journalist? No, I did not meet with a journalist.
Abd Al-Razziq's problem was that he had been insisting until that point that he had lied "in order to escape the pressure of torture" and had failed to allege his torture previously because public disclosure of his torture while in Sudan would put him in jeopardy. Hence admitting to voluntarily telling a journalist while still in Sudan that he had been tortured would undermine his claim of jeopardy. Upon being presented with incontrovertible evidence that he HAD, in fact, met with a journalist, he then decided that it served his credibility better to switch his story.

Even more to the point, Abd Al-Razziq claimed that he told consular officers David Hutchings, Allan Bones, and Michael Pawsey in 2004 that the Sudanese tortured him. But all of these officials independently and directly contradicted Abd Al-Razziq's claim. On top of this additional doubts were raised about the particularities of Abd Al-Razziq's torture claims, which shouldn't need review since I believe the point has been made: to state, as Zinn, J. did, that there is not just "little reason" but "no reason" to even "challenge" Abd Al-Razziq's "assertion" that he was tortured is astounding.

Although the Canadian government had asked the UN in 2007 to remove Abd Al-Razziq from its terror list, Justice Zinn still found the government liable such that issuing Abd Al-Razziq an emergency passport (something the government had good reason to be circumspect about given Abd Al-Razziq's history of reporting a "lost" passport in the 90s) was insufficient: with no acknowledgement of the distinction between negative rights (the right to live without government interference) and positive entitlements, the Charter right of a citizen to enter Canada was read as a right to promptly provided taxpayer-financed transportation to the country.

One would never guess that Abd Al-Razziq's credibility has ever been questioned from the mainstream media's coverage of his travails. We are supposed to believe that Abu Zubaydah's info about him is not worth anything, yet Zubaydah's evidence that he saw Odil Charkaoui training in Afghanistan in 1998 was independently confirmed by Ahmed "Millennium Bomber" Ressam. This same Charkaoui happens to be linked to both Abd Al-Razziq (Charkaoui "saw him everywhere in Montréal") and the Tunisian recruiter Hannachi, whom Abd Al-Razziq went to Afghanistan with in 1996. The MSM also continues to exclusively propogate Abd Al-Razziq's preferred rationale for his return to Sudan, namely, that he was there to visit his sick mother, yet his associate Samir Ezzine has sworn otherwise.

As near as I can tell, I am the only one to dig a little deeper, and then only because as a graduate of a Canadian law school I have life experience based suspicions about the level of bias that exists in legal academia and the enthusiasm of the legal community for Orwellian rhetoric about how openness would "politicize" the judiciary.

There is a good reason why the largest anti-corruption body acting globally is called Transparency International. Transparency allows the public to come to a conclusion about what was formerly in the dark. It's time for Canada's legal community to let the light shine.

Monday, August 10, 2009

Wildrose Alliance appears in Edmonton Journal

The Wildrose Alliance made a rare appearance as the primary subject of an Edmonton Journal article this weekend about Edmonton. The party did so poorly in the Edmonton area in last year's provincial election that there is a good argument that significant coverage of the party has not been warranted in media covering the Edmonton market. That said, I believe that the media better serves society by adopting what marketing gurus call a "technology push" strategy as opposed to a reactive "demand pull" approach. Macroeconomic policy innovations are analogous to microeconomic innovations such that the media can and should play a constructive role in disseminating what comes out of policy shops. Political parties are (sadly) not policy shops on the same level as think tanks but they are an important vehicle for "commercializing" otherwise theoretical policy such that the media educates and informs by giving smaller non-populist parties attention that may be disproportionate to their popularity. It is the fact that most online-only media merely indulge populist prejudices instead of challenging them with new facts from investigative journalism or professional/academic research that makes me a defender of what bloggers dismiss as "the MSM".

The Edmonton Journal reflects its market more than I think it ideally should (and I don't just mean its editorial stance; - with respect to oil patch related stories like the Fraser Institute's Global Petroleum Survey, other media should have carried that as a wire story prepared by the Alberta capital's leading paper instead of the other way around). But for those of us who are concerned about developments like Newsweek's repositioning as an opinion journal (opinion always being a lower cost product that investigative journalism) it behooves us to pull some punches with respect to criticizing anything that makes money for traditional media (I could direct media moguls to the fact that the Economist is studiously avoiding populist compromises while making more money than ever, but we can't all emulate what John Ralston Saul dubbed "the Bible of the corporate executive").

But regardless of these considerations, the prospect of someone both urban and urbane (in striking contrast with our current premier) assuming the Wildrose Alliance leadership in conjuction with the buzz the party has been receiving in other Alberta media fully warrants Archie McLean's Sunday article.

My one objection to the story is describing the Wildrose Party as a "splinter group". The context suggests the Wildrosers split off from the Alberta Alliance. Although that is the case for some prominent and popular names like Eleanor Maroes, the Wildrose Party's President, Rob James, was a PC party stalwart, and Link Byfield, who was the most important player in the Wildrose Party (and who will continue as a respected elder in the merged party, not least for his critical role in advancing Danielle Smith's candidacy) had a negligible background in the Alberta Alliance as well, to my knowledge. For what it is worth, I was never a member of nor had anything to do with the Alberta Alliance.

Whither the Wildrose Alliance in Edmonton? If I learned anything from last year's election, it is that the party faces enormous obstacles in the capital region, principal among these being Stelmach's careful cultivation of the perception that he is the north's "native son". I believe job #1 at this point is to advocate for the cultivated Danielle Smith, who is marketable in a city that happens to be more cosmopolitan than many outsiders believe. Job #2 is to look at the October 2010 civic elections. The fact Mike Nickel could get elected as an alderman in Edmonton should be seen as evidence that while business-friendly candidates face an uphill battle in the capital city, it is possible to make a difference. Even an unsuccessful civic campaign would be a learning experience for those involved and would be serve as a valuable vetting process for the Wildrose Alliance in terms of candidates to recruit in the 2012 provincial election.

Friday, August 7, 2009

"cap and cut"?

Today's Calgary Herald editorial calls for "cap and cut". Let's be clear here: "cap and cut" is not a policy, it's a tagline created by a politician. Saskatchewan Premier Brad Wall's new slogan makes little economic sense because if the government caps the emissions of two large emitters, say X and Y, and X could cut emissions at a cost of $10 per tonne and Y for no less than $20 per tonne, the government is making emissions abatement unnecessarily costly if Y cannot "trade" with X such that Y pays X $15 per tonne to reduce on Y's behalf. Y saves $5 per tonne in costs and X finds a new profit source in reducing emissions and selling the credits thereby earned.

The skeptics suspect that if a market for carbon emissions credits were actually set up, X would be an out-of-jurisdiction enterprise that would indeed find a new profit source in selling credits (to within-jurisdiction emitters) but without actually doing any real emissions reductions. I share this skepticism to sufficient extent that I am not a supporter of cap and trade relative to a carbon tax. But that's because the particular nature of the thing to be traded here. The Herald seems to object to the "trade" part of "cap and trade" on the general grounds that it would be, well, trade: to wit, "moving money around". As such, Calgary's paper of record feeds the presumption, perhaps unwittingly, that market systems in general just "move money around" and enrich financial sharks without creating any economic value.

In general, markets function well in setting the price signals that determine production. But the critical issue for markets is how to deal with information asymmetry.

A review of the financial crisis is instructive here. Although the flood of capital into the US (partly a consequence of the 1997 Asian crisis, in the wake of which many countries decided to protect against future runs on their currency by accumulating USD denominated assets) increased the risk that a sector of the US economy would have too much financing available to it, a bubble (which is a market failure, never mind the efforts of the EMH proponents to argue otherwise) was not strictly inevitable. The root of the 2008 financial crisis was rather a moral hazard: US mortgage originators were insulated from risk (or, more precisely, thought they were) because they spun the risk out to third parties via the financial system. Although financial markets perform a valuable function by redistributing risk, a tradeoff occurs (diminishing the social value of seeing the market trade occur) when the buyer of risk has less information than the seller. Had mortgage originators remained fully exposed to the risk of default by carrying the mortgages on their own books, they would have been fully incentivized to play a more active monitoring role with respect to their more doubtful clients. Although market discipline could have theoretically ensured that the originators remained vigilant, this discipline presumes that players all the way down the securitization chain could have been insightfully informed of the situation "on the ground". Maintaining this is increasingly difficult the more abstract the securitized products get. It is thus not just the quantity of information transmitted through layers of market players that matters but its complexity. More exacting disclosure regulations could not have helped avert the crisis when the problem was that it was too difficult to interpret the available information and when the people who could interpret the information had incentives to not share what insight they had. Finally, there was also an element of plain old dishonesty in that people filled out forms claiming that they had high incomes when in fact they didn't even have jobs. The bottom line is that the picture became too obscured for the pricing mechanism to ensure the efficient allocation of capital (although the US practice of allowing the tax deductibility of interest paid on residential mortgages was distortionary despite its transparency). Too few financial actors were engaged in the price discovery that sends signals to real production (they were instead creating and trading derivative products, which are effectively parasites on the price discovery process).

"Cap and trade" has problems of incentives and pricing complexity in spades. To take but a couple of examples, who is going to discipline the jurisdiction that sets easy caps on emitters in its territory in order to poach industry and keep employment up? Multilateral agreements could be made, but how is one going to detect and discipline cheaters? How economically useful is it going to be to stimulate the growth of a lobbying industry dedicated to convincing politicians to raise or lower the caps? An unworkable international emissions credits market (a purely local market defeating the whole point of a market) nonetheless does NOT mean that markets in general do not work. Economists are in almost universal agreement as to the value of free trade in goods and services. The consensus is also clear with respect to the free movement of capital provided it is genuine capital and not financial derivatives thereof which may or may not accurately represent changes in underlying capital. The problem with "cap and trade" comes down to the fact that the emission credits to be traded, which need to be fungible across jurisdictions, might not represent real emissions reductions. But that's a specific problem, not a general one.

Sunday, August 2, 2009

the sorry state of the US healthcare debate

After almost two decades of holding a subscription to TIME newsmagazine, I've decided not to renew. I don't have a problem with left leaning publications; indeed, I probably read more material from "left" sources than "right". But what is insidious about TIME is that its agenda is not apparent (aside from the fact that Joe Klein is unabashedly the biggest Obama partisan amongst MSM columnists, a remarkable feat given the intensity of the competition for this distinction). I could take a number of examples, but TIME's July 28 article "Taxing Pricey Insurance: No Health-Care Cure" will readily do. Despite the fact the whole focus of the article is the tax exclusion for employer provided health care, at no point is there any reference to the consensus of expert opinion on the subject. We instead just get
- the claim that "very few [nonelderly Americans] would look kindly on reforming the system" by removing the exclusion
- a few quotes from union lobbyists
- the argument that "Cadillac health plan" is somehow "misleading" terminology because these plans are more often enjoyed by union and public sector employees than CEOs:
many more of the most expensive employer-based health-insurance plans cover people like the families of New Hampshire state employees who, according to the Boston Globe, have policies worth $20,400 per year
- the title's conclusion that there is "no cure" to be found here

Contrast this with more openly leftist The New Republic, where their healthcare writers Jonathan Cohn ("most economists will tell you ... [t]he exclusion distorts the market") and Harold Pollack have both acknowledged where expert opinion lies. As Pollack writes
[re the] Taxation of health benefits... A large and influential group of policy experts--not least among them,Congressional Budget Office Director Doug Elmendorf--believe that this is the surest way to pay for reform and curb health spending in the future.

So why is Pollack not calling unequivocally for removal of the exclusion? He's frank: "For reasons of coalition politics, I don't go as far as ... many economists would." Pollack acknowledges that "Unions provided boots on the ground by the thousands in various canvassing efforts [for Obama]."

It's not like the economic argument is so abstruse mass market readers could not follow it. Of the measures that are uniquely tax exempt in America, the two most significant are income spent on servicing a residential mortgage and income spent on health care services. What is so special about these particular services that consumers should be able to pay for them with pre-tax income instead of after-tax income?

It should be obvious that when the taxman is not taking a cut from a particular sector of the economy that sector's share of the economy is going to grow, and we've already seen the consequences of retail overconsumption of mortgage origination. You accordingly don't have to be an expert CBO analyst to appreciate that raising taxes just on the non-healthcare economy in order to pay for broader health insurance coverage is more likely to "bend the curve" of spiraling healthcare costs up than down.

Although healthcare benefits are also not taxed in single payer systems like Canada, consumers here have to "bargain" with government and thus ultimately themselves as taxpayers for their level of healthcare service. In the US, employees bargain with their employers, and it is all too easy for them to agree to an inflated, inefficient level of service because, to get technically precise for a moment, the deadweight loss created by the externality is borne by third parties (the self-employed and the uninsured underclass).

To make the point with an example, suppose the employment compensation your household earns consists of $50 000 in wages and $10 000 in healthcare insurance. In negotiations for another $5000 in compensation, you could either get, on an aftertax basis, another $3500 in wages or another $5000 in healthcare value. The employer, of course, is indifferent between the two as both would create a $5000 tax deduction for the employer. What are you going to choose? Now, in practice, most individuals are not as familiar with the way the system works as professional union negotiators such that it is typically union members (as opposed to individual bargainers) who end up with "Cadillac" health plans. And so it is that the unions are quite happy with the status quo, such that if there is to be any expansion of healthcare insurance coverage, they want it paid for by taxing the non-unionized (a group which includes the über-rich and the self-employed). Even if not taxed directly, the non-unionized working outside the healthcare sector pay an opportunity cost because unionized employees chose not to take their compensation increase as wages that could be spent in the non-healthcare economy.

On top of this is the fact that removing the exclusion would facilitate labour mobility and make costs more transparent to consumers.

I've been spending a fair amount of time on the US healthcare debate, and the prime reason why is because this is a critical test of whether the United States will get its fiscal house in order. With respect to soaking the rich, "You can only go to the same well so many times": if you can't tax the "middle class" here in order to rein in the deficits, when the policy argument for doing so is so clearcut (any absence of clarity being attributable to the sorry state of the current debate), the United States is highly unlikely to ever do so short of a California style fiscal crisis (or worse).

UPDATE August 4:

It appears that a couple of wonkier left wing pundits have finally broken from the herd. J. Lester Feder, a former "steward of the United Auto Workers" notes in a Salon piece that "[t]he employer exclusion is a backdoor health insurance subsidy that gives the most help to the wealthiest workers with the best benefits while fully taxing the income of uninsured low-wage workers" and defends the reforming efforts of Senate Finance Committee Chairman Max Baucus (D-Mont.) against Obama's union coddling policy. Today Jonathan Cohn at TNR joined Feder in calling for a partial rollback of the tax exclusion for group health insurance by supporting a cap regardless of what organized labour thinks.