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.

I'm surprised at your learnin'

The Alberta Altruist has uncovered a video of Jack Mintz going over the numbers related to his fiscal management report with "in the red Ed" and Finance Minister Iris Evans.

My advice to Professor Mintz in any future encounter: don't let on that you're an urban Calgarian. Show your common touch with a tale about how you accessorized your Lamont County pick-up with a gun rack and a moosehead on the grill. Don't used the phrase "pimped out my ride" or Iris' moral fibers might unravel completely.

The huge failure of Canadians is not to educate the children properly, and then why should we be surprised when they have mental illnesses...
- Iris Evans, casting pearls of wisdom before Toronto swine

Alberta Federation of Labour vs pension reform

Although MIT economist Jonathan Gruber told Congress

It is clear to me... that one source of financing dominates the others: reducing the expensive, regressive, and inefficient subsidization of employer-sponsored insurance. Financing coverage expansions by scaling back the exclusion would be highly progressive and would reduce a major driver of overinsurance and excessive health spending in the U.S. This is truly a win-win solution...

as I noted in my last post, unions south of the border are pushing back, threatening to strangle healthcare reform in its crib:

Douglas Elmendorf, head of the Congressional Budget Office, told Congress last week that "the cost curve was being raised." ... Elmendorf favored limiting tax-free employer-provided health benefits, but organized labor remains strongly opposed.

A limit on tax subsidies for the costliest health insurance plans would give households and employers a reason to become smarter shoppers but unions are opposed. It can always be demagogued as a Republican idea, as Ezra Klein notes:

Republicans ... have made unwinding the employer-based market core to many of their proposals. It was in John McCain's proposal and Tom Coburn's proposal and every other GOP draft I've seen. It's also central to the Wyden-Bennett plan that has attracted a number of Republican cosponsors.

While unions are thus busy blocking attempts to raise the necessary taxes to fund US healthcare reform (apart from soaking the rich, a move that is far more inefficient and too sharp a left turn to get through Congress), north of the border readers of today's Calgary Herald would learn that

[Alberta Finance Minister Iris] Evans said if agreement on a national program can't be reached, the province is willing to continue working with B.C. on a supplemental pension plan which would allow the self-employed and workers to sign on. ...
But Bill McGowan, president of the Alberta Federation of Labour, [is opposed]....

The parallels to the US healthcare debate should be clear here. The fact that millions of (non-union) Americans do not have adequate healthcare is something of a national embarassment in terms of social justice, as is the fact that millions of (non-union) Canadians do not have adequate retirement savings. Yet the union lobby has no interest in solving either of these problems because these are not problems they face. Note the argument of AFL-CIO President Sweeney:

the ... claim that the the current tax exclusion favors those with coverage at the expense of those without -- even if it were true -- is completely inapplicable when everyone is covered -- an essential goal of reform.

This is simply false. Soaking the rich with high marginal rates on their investment income may indeed pay for covering everyone (at significant cost to investment levels and, ultimately, total output). But that does not change the fact that the tax measure at issue favours one group over another without any justification on either efficiency or social justice grounds.

In Alberta, within coming months union interests are likely to argue for enriching CPP and OAS payments. Never mind that unionized worked don't need this; in the interests of "equity", the unions will argue that everyone should benefit from any new social programs. When it comes to the advantages that unions secure for their members via their monopoly power, this is supposed to be "inapplicable" to both social justice and efficiency considerations. In the debate about whether the free market distributes fairly enough and who should give up more, we are thus supposed to ignore the distortions created by union power.

The Herald goes on to say that Jack Mintz has been appointed to study the issue. Mintz was previously appointed to study the issue of Alberta's lack of savings (a problem that goes directly to the topic of supporting the province's seniors in the future) and his report was at first suppressed and then ignored. Rather than stay home and listen to Mintz, Finance Minister Evans spent $24 500 on transport alone on a January junket to Europe "to study savings strategies, pension management and economic development."

the sorry state of Alberta's sovereign fund

The Globe and Mail has a story on THE story that needs to be told in Alberta. The raiding of the Heritage Fund is the #1 reason I ran against the P"C" party as a Wildrose Alliance candidate a year ago. Finance Minister Evans says the government is going to spend its way into oblivion, anything that stops that slide must be "not at the expense of public services." Of course, ANY saving measure (or tax cut) is going to be at the expense of an increase in public services... in the short term.

See this Calgary Herald piece (or this one by some Fraser Institute economists) reviewing how Alberta arrived at its present state. "Shameful," concludes the Herald.

Alberta govt says it's "ill-suited to think about investment strategies"

the Opposition Liberals continued to hammer on the fact that almost every other major oil jurisdiction has a long-term savings plan in place. Norway alone has saved more than $300 billion.
In the meantime, said Liberal Leader Kevin Taft, the Alberta government has spent more than $200 billion over the last three decades, and the balance of the Heritage Savings Trust Fund - about $16 billion - is lower when adjusted for inflation than it was 20 years ago.
"We are liquidating the enormous wealth of this province as quickly as is humanly possible. This is a dangerous, dangerous pattern and it's been going on for many years in this province," said Taft.
That drew snickers in the house from Energy Minister Mel Knight...

I'm extremely frustrated with the direction of my home province. I left Ottawa and returned to Alberta thinking that smaller government sold better out here and instead I find one of the biggest expansions in the size of government in the developed world well underway. It's left to a party called "Liberal" to call for fiscal discipline from a Finance Minister who describes herself on Facebook as "Very Conservative".

And an election merely reinforces what's going on.

From the Edmonton Journal:

The finance minister also reasoned in her speech that MLAs are ill-suited to think about investment strategies because they no longer read stock-market reports out of personal interest. ... "We're less likely to be current with financial nuance than you are," Evans told the breakfast crowd

Right. That's we why elect you. For what you don't know. The expert report from Jack Mintz is gathering dust on her desk while Evans says this. "Ah, but the Tories are listening because they are calling for public consultations on savings policy." Please. These consultations are the one of the most cynical exercises I have ever encountered. The Tories know full well that they will be able to use these consultations to argue that they have a mandate from "ordinary Albertans" to spend and to accordingly shelve Mintz' report, along the with expert advice of every other economist and financial professional out there.

When a government is utterly shameless with respect to the extend to which they are willing to pander to populism, it is extremely difficult to counter unless citizens are sufficiently engaged to see the pig behind the lipstick. In central Alberta the idea that "Ed Stelmach" is one of us sold like hot cakes on the doorsteps. The long run supply curve? No time and no interest for such abstruse matters. The Tories aren't interested either, which is why they are going through the charade of soliciting the opinion of the man in the street whose opinion this poll driven government is perfectly aware of already.