Wildrose AGM review Part 4 - Alberta Constitution, financial regulation, gun rights

One of the first policy planks to come up for a vote called for an Alberta Constitution. A lawyer (or law student?) helpfully pointed out this could well end up playing a similar role to that of the Charter of Rights and Freedoms. As such, it would serve to limit the discretion of the elected legislature. The membership ended up voting for this measure, but later on voted for a philosophically opposite measure by deleting a clause that called for a referendum before invoking section 33 of the Charter (the Notwithstanding Clause), thereby handing discretion for whether to "opt out" of applying a provision of the Charter within Alberta back to the legislature. A sponsor of the measure to delete the requirement for a referendum when using s. 33 claimed that there would otherwise have to be a referendum every 5 years, but in fact that is only true under an unreasonable interpretation of the Wildrose policy clause. There is nothing in Canadian law which would preclude a provincial legislature from holding a referendum once, and the legislature interpreting that as supporting, say, a 50 year mandate instead of 5, and accordingly renewing sans referendum the use of s. 33 ten times over that 50 year period (every 5 years as is required by Canadian law).

I supported the use of section 33 without holding a referendum and voted against bringing in an Alberta Constitution primarily because I am a conservative as opposed to a libertarian. At the heart of our current problems is not too little reference to rights but too little reference to responsibilities. An Alberta Constitution, like all forms of legislation that are intended to be superior to the legislation produced by a legislature, would restrict the power of the majority (presumably) in the name of protecting the minority. The net result of this is provide a means of legal redress against the coercive power of norms. If the norm is to not engage in a certain behaviour, by enshrining a constitutional right to engage in the behaviour, deviants can sue to preserve their right to deviate. That's all well and good in theory, but in practice norms are what hold society together and minimize the development of anomie. The Charter of Rights and Freedoms only works in a liberal / libertarian direction opposed to conservatism because of its fundamental nature: it is not a "Charter of Responsibilities". While I grant that an Alberta Constitution could include rights that conservatives would normally support as part of an alliance with libertarians, like property rights, having experienced life in 80-odd countries and studied law and society for several years I am convinced that what ultimately protects a "right" is a society's norms, not what is written in its law books. Whatever a country's constitution might say, it is going to be interpreted in a way that is consistent with the prevailing culture of that country and the mentality of its people. North Korea is formally known as the Democratic People's Republic of Korea but in reality it is one of the least democratic jurisdictions in the world. An Alberta Constitution could ultimately make it more difficult to take necessary collective actions like creating budget surpluses, since it could create negative rights to not be taxed, positive rights to government services, or both. You might believe that the less collective action the better, but note that collective action is not necessarily government action. Whatever one's opinion on gay rights, for example, it is difficult to deny that the primary objective for those who used the Charter to advance gay rights was the erosion of the social norm than found same sex relations deviant. Government's role was really just incidental, since there was nothing stopping same sex couples from solemnizing their relationships before friends, family, and/or clergy. "Official" government recognition was important not for the piece of paper it involved but the message that was sent to the general public. Acceptance by society, as opposed to some formal government institution, was the most important goal.

Now it is true that an Alberta Constitution could enshrine things like "a marriage consists of one husband and one wife" but enshrining norms in legislation that is superior to elected legislatures is an abuse of power. Enshrining (true) rights at least has a rationale revolving around limiting majoritarianism. Enshrining whatever happens to be supported by the majority at a particular point in time (as reflected by the opinion of an elected legislature) as unchangeable for future majorities is to engage in unjustified exceptionalism. What is so special about today's norms that some of them should receive constitutional status? There has to be some sort of timelessness argument, and it is because I believe very very little is truly timeless than I oppose charters and lengthy, wide-ranging constitutions. Actually, I should correct that saying that I believe there are a number of timeless transcendent values but I am not inclined to force others to accept them by accepting my view of a constitution over theirs. Leave it to democracy. Choose conservative humility about what constitutes social justice over liberal arrogance. Constitutions and Charters take power away from democracies and hand that power to the framers of constitutions and charters. If an Alberta Constitution took power away from the federal government, I would interested in supporting it but, of course, an Alberta Constitution could control only the Alberta Legislature, not the Canadian Parliament.

Three policy proposals that came up later arose in a sequence and I ended up approaching the microphone to speak to all three. Two concerned labour and one concerned securities regulation. I'll address the labour matters in a subsequent post since otherwise this blogpost will be absurdly long. I spoke out against the proposal titled "Securities Act" because it just added clutter to the policy book. The policy planks should bind elected MLAs (and the party executive / leadership?) and this proposal didn't limit discretion at all. Gut securities regulation? Arguably OK because the proposed clause said the party supports greater protection for sellers of securities (against whom if not the buyers of securities, who would only have a positive action against the sellers if the law gave them one?). Increase the level of securities regulation? Just as defensible because the clause also called for greater protection of buyers of securities. A speaker in favour of adopting the policy plank made reference to the financial crisis, but I would refer readers to what the Economist wrote about the financial crisis just within the last day: "Though the financial crisis was global, it originated in America’s uniquely fragmented financial system, overseen by a patchwork of federal and state regulators." If the USA has a "patchwork of federal and state regulators" what does Canada have? Yet continuing or even increasing the "patchiness" of regulation in Canada seems to be exactly what the Wildrose leadership / caucus has in mind when it so intensely opposes a single national regulator. The Alberta Securities Act and Regulations is something like 3 inches think. It was my fattest statute book when I was in law school. Now times that by 13 for 10 provinces and 3 territories and call me when you are done reading, because only then have you mastered securities regulation throughout Canada, which represents, at most, 3% of global capital markets.

Were the party to adopt a plank like,

The Wildrose Alliance will use Alberta's influence over a national securities regulator to attempt to ensure that only financial derivatives listed on public exchanges may be traded in Canada

one might actually have something that got at what caused the crisis and helped prevent a future one. As that same Economist article notes, "[under the Dodd-Frank Wall Street Reform and Consumer Protection Act] Most derivatives that now trade dealer-to-dealer will be traded on public exchanges. That will lessen the risk that one dealer’s failure brings down others." Why is the risk reduced? For two main reasons. The first and most direct is that exchanged traded products are marked to market, usually daily, such that if one's counterparty defaults, the default is on just one day's worth of margin, whereas if the product were off-exchange, days, months, and perhaps even years' worth of a position going against the counterparty could have built up, leading to a massive credit overhang. The second is more structural, and goes to the transparency of the system. As the Globe and Mail reported on June 30 in a story titled, "Ignorance of derivatives spurred AIG fall",

As markets slid toward chaos, [AIG and Goldman Sachs] quarrelled bitterly over what obscure derivatives were worth, current and former executives testified Wednesday.
Their testimony casts light on what has long been one of the murkiest episodes in the broader meltdown.

Most Wildrosers support free markets primarily because they are free. As an economist, I primarily support free markets because it is generally the case that free markets make fundamental price values more transparent (government bureaucracy obscures the state of true demand and supply). But in the case of derivatives, which, as their name suggests, derive their prices from more fundamental prices, they make the fundamental economic signals more obscure. An off-exchange derivative is especially obscure because it is a tailored, non-standardized product requiring a unique valuation.

At the end of the day, neither of these policy planks, the Alberta Constitution nor this "Securities Act" plank, were especially consequential in and of themselves. With respect to the Constitution, what will matter is what is in it, not whether it exists or not. And the Securities Act plank didn't say anything. One could argue that the proposal to add a clause after "a Wildrose government will entrench individual property rights" stating "ownership of firearms is a form of property rights" would have been consequential (had it passed) but I don't think it would have been of great import in any case aside from optics (meaning voting just on one's view of the optics was entirely appropriate). It really just said what should be obvious: if one owns a gun one owns a gun. Governments violate individual property rights all the time by taxing individuals; it is just a question how much property the individual is left with after the tax man departs. What would matter was how the proposed policy plank was interpreted, and on that count I voted against it because the context seemed to be that of raising the right to own a gun to the level of, say, the right to due process, i.e. beyond mere property right. The debate on the subject helped turn votes against the proposal, I suspect, since the respected Link Byfield spoke out against and speakers in favour used implausible and/or extreme rhetoric, e.g. "a man without a gun is a slave (a man with a gun is a citizen)." As it was, a Firearms section which contained a lot of pro-firearms language was added to the policy book later, and the presumptive reason why that passed and this first proposal didn't was because the later proposal was in a context that was more appropriate to gun rights being on the level of presumptively respected but practically regulated property rights than on the level of inalienable and absolute personal rights.

So what did really matter, in my view? The provisions that were union-related, for reasons I will explain in my my next post.

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!

Iris Evans: stop obstructing efficient securities regulation

Although my time with the Dept of Finance in Ottawa was relatively short, the Department was headed by no less than 4 different Ministers (3 Liberal and 1 Conservative). We (the civil service) noted to all of them in one form or another that something needs to be done about our balkanized system of securities regulation. "Balkanized" is an especially apropos adjective here since for a long time the only country with a system as fragmented and inefficient as ours was the Balkan country of Bosnia-Herzegovina; Bosnia has reportedly made some improvements in recent years.

I am not a fan of increasing federal power. Federal taxing power is far in excess of what it should be, since Ottawa collects significantly more tax revenue than it needs to fulfill its constitutional responsibilities. The feds transfer a portion of that back to the provinces, but this has fueled an ongoing political war between the central agencies and the provincial governments over how big each province's transfer should be. Securities regulation is an area which if left to the provinces creates unnecessary duplication, waste, and headaches for securities issuers both domestic and foreign. The reality is that capital markets have gone global and we need a securities regulatory system to match.

I had a reputation in Ottawa for being a stereotyped Albertan given the things I argued for around the watercooler. But when it came to fulfilling my obligation to provide non-partisan advice to the Minister, like the rest of the economists at Finance Canada what mattered was the evidence. There was a lot of consensus among us because despite the fact we had origins from all over the country almost everyone there who had input into the process of policy analysis believed that the process had to be, in a word, scientific. If academic argument and statistical data supported a particular policy, the question of whether the policy was left or right or central Canadian or western Canadian did not enter into the equation. Optics issues were for the Minister and his political people on the 21st floor to tangle with.

Except for those in Tax Legislation, few people at Finance had law degrees. It was mostly masters degrees in economics and some PhDs. There were some fellow MBAs in the Department but they were but a handful and to my knowledge exclusively in my Financial Policy Sector Branch. As someone who also had a LLB, I would advise anyone in my Division who was willing to listen that Justice ought to just draft legislation creating a national securities regulator because from my studies of constitutional law, the operating assumption that the matter was the preserve of the provinces was far from legally certain. Let the provinces led by populist politicians mount a challenge, and then dump all the evidence in the lap of the Supreme Court and expose the demagoguery for what it is. Just jawboning the provinces about working together was not working.

I am accordingly pleased to learn Friday that this is exactly what the federal government is doing. As John Ibbitson notes,

... whether it is harmonizing sales taxes or regulating the markets, this government is committed to reducing barriers to trade and investment.

Indeed, Harper has won back my vote this year because he has evidently decided to change his ways and support his Finance Minister in heeding the civil service's (often private think tank influenced) advice.

Peter Lougheed brought down the Social Credit dynasty because the SoCreds were unable or unwilling to modernize. The world was going the other way and Alberta belonged in front, not behind. In 2009, Finance Minister Iris Evans has insisted that her province "will continue to oppose, through all available avenues, including legal action if necessary, any move toward establishing a single national regulator." These remarks are more revealing of a problematic hostility to contemporary thought than her comments about child rearing, since her talk about the latter was ultimately just that: talk unattached to an identifiable government policy. On the policy of financial market regulation, the Stelmach government has taken a clear stand, a stand that is also clearly wrong in the eyes of most capital market participants. The world is going the other way.