Dave Hancock vs free trade

The attendees of the P"C" party of Alberta convention in Red Deer this past weekend helped clarify for the voters their view of fiscal conservatism, as "Several resolutions on spending controls were rejected, including adopting legislation limiting year-over-year spending increases to the rate of inflation, plus population growth..."

Could it be any clearer? The Wildrose Alliance platform contains a plank, a plank that, in my view, would be the cornerstone of the platform if associated with anti-cyclical tax reforms that would put serious (windfall revenue denying) teeth into it: "The Wildrose Alliance believes Alberta will limit growth in program spending to the rate of inflation and population growth of Alberta." This very same Wildrose Alliance plank was considered by the P"C" Party and rejected. At least they are consistent... these P"C"s are the people who increased government spending 191% between 1996 and 2008 while the population grew 34%. Plus ça change, plus c'est la même chose.

What are the stakes here? Jack Mintz does not believe that even limiting spending to population growth plus inflation will be sufficient to both avoid both deficits and higher taxes. No economist of note who has taken full account of Alberta's future demographic challenge has disagreed. The implication is that continued government by the P"C" Association of Alberta would not mean just deficits and higher taxes, but LARGE deficits and/or MUCH higher taxes.

If that wasn't enough Red Toryism for you,

Members approved a policy from Education Minister Dave Hancock's Edmonton [Whitemud] constituency association calling for the upgrading of more oilsands bitumen in Alberta by blocking shipments to other jurisdictions. The province should take "whatever appropriate action is necessary" to achieve the goal, said the resolution, including legislating that bitumen be upgraded in Alberta.
"One of the things we want out of our oilsands is to have the value here," Hancock said, suggesting the proposal is consistent with government policy. While the province doesn't like to interfere with private business, "unless you engage in some way, bitumen is going to flow down the pipe," Hancock said.

It is absolutely true that unless government "engages in some way" ("engagement" being the Dave Hancock-approved term for coercive regulation) people will freely trade. That means exporting bitumen when the price is attractive and when the investment climate in Alberta has deteriorated to the point that the corporate finance number crunchers conclude upgrader projects within the province are lower NPV than in other jurisdictions. Now the government COULD change elements of those NPV calculations by 1) reducing the marginal effective tax rate (METR) on new investment to a more competitive level and/or 2) reducing the risk adjusted discount rate by not changing energy industry policy every time the populist winds shift and/or 3) stop crowding private investment with continued high levels of government spending that inflate the cost of business inputs, including labour. Not one of these options were acknowledged. Rather, Dave Hancock's Whitemud constituency association reckons coercive, trade restricting regulation needs a place at the table, a contention that would have been of limited interest to non-Whitemud voters were it not for the fact that the rest of the convention-attending, Stelmach-supporting P"C" membership decided it would make a great policy plank for their party. BA Energy spends more than a half billion on an upgrader near Fort Saskatchewan, goes bankrupt, and the problem wasn't the escalating cost of doing business but insufficient government "engagement"? Perhaps Hancock's idea of "engagement" also includes a massive corporate welfare scheme that would send billions of taxpayer dollars down the rat hole. After all, if they can find billions for boondoggle carbon capture projects, surely they can find billions for boondoggle upgrader projects that would create more carbon to capture! Of course, these upgraders will also suck so much juice from the grid we'll need a massive new power transmission line project... you see how it all fits together?

If the government is not going to allow the private sector to export bitumen, are they going to allow the private sector to give out-of-province investors a return on investment? If Hancock can't tolerate gooey black stuff "flowing down the pipe" how is he going to keep his paws off an actual cash flow? Longtime readers of this blog know that I'm a frequent critic of the Prime Minister and what I see as a "firewall" mentality. But if there has to be a wall, I'd take Harper and Ted Morton's mostly symbolic social "firewall" around Alberta over Dave Hancock's economic firewall any day of the week and twice on Sundays. It is the expectation of being able to eventually take out a return on investment that creates the confidence to put the initial job-creating, economy-building investment in.

At the 2010 P"C" Party AGM, perhaps the Edmonton Whitemud P"C" constituency association will propose that the government take "whatever appropriate action is necessary" to ensure Albertans consume Alberta-grown bananas. Mr Hancock could explain that Albertans want "to have the value [of banana production] here." Indeed, Albertans might have to go without any bananas that aren't home grown because foreigners decided not to trade with us after we are refused to part with our bitumen (we'll trade you some worthless stuff we Albertans don't want instead... what? not interested?) If the government does not "engage in some way," you get all these free traders influencing production and investment decisions, and that's apparently just too much to bear for Dave "give me my financially and environmentally dubious upgraders" Hancock.

Dave Taylor vs Mel Knight

Dave Taylor challenged the provincial Energy Minister quite effectively in this Youtube clip from Question Period, IMO. Sadly, the government is in fact notorious for using taxpayer money for promoting what many observers believe are partisan ends.

I would like to see an opposition member stand up to challenge the government on why it is bringing back a retail bond program when it was terminated in the 90s because of its cost to the taxpayer relative to wholesale issuance, but the topic is probably too arcane.

new Alberta poll? PC 34 WRA 28 Lib 20 NDP 9

and 8% interested in voting for a provincial Green Party that does not currently exist as far as Elections Alberta is concerned.

I put a question mark after "poll" because the National Post seems to have pulled the story and I don't see it on either the Calgary Herald's or on Environics' website. Maybe there is some sort of problem with it. Intuitively, though, the poll results are plausible because it would be consistent with the fact the ferocious growth in the Wildrose Alliance membership rolls tapered off only moderately after the cut-off date for leadership vote eligibility passed. Anecdotally, whereas some of my direct friends just joined the party in September, by the end of October some friends of those friends were joining.

It's close to the point whereby we could run the proverbial monkey in a riding like Calgary West and get him elected under the Wildrose banner; if the party is 4 points ahead of the PCs Calgary-wide, it is probably a comfortable gap in the western and southern 'burbs. If we have any truly safe ridings it will free up some resources for long shots.

In Edmonton, it is PC 33%, Liberal 27%, WAP 17% and NDP 13%. We probably need to get that 17% to 20% to win a seat, as that would probably also imply a drop in PC support to 30%, and from 10 points behind across the city there ought to be an idiosyncratic riding we could scoop in a three way split with the Liberals à la Glenmore; e.g. the to-be-created one that I expect to be centered on the South Commons area. Indeed, the capital city strategy I am championing is to go after the likely-to-be-split Edmonton Whitemud riding with a one-two punch, the first being to run a fiscal conservative in the open municipal Ward 9 next October (which overlaps almost exactly with the current Edmonton Whitemud provincial riding), and then run that sitting alderman (who, having won, will have proven him or herself to not be some unelectable nutbar as well as a hard worker and/or fundraiser) over some of the same territory provincially in 2012. Our Zone Director is a fan of the idea that 2012 candidates should be fished for in the pool of civic 2010 candidates who, even if they didn't win, proved that they can campaign and win some votes. I don't think I am giving away too much strategy here because, aside from the fact this is just me talking as opposed to a directing group of Wildrosers, what is the competition going to do? Run a lefty in Ward 9 in order to try and shut out fiscal conservatives from city council? They couldn't have run a better insurgency than Iveson in 2007 yet if you overlaid the 2007 polls over the new Ward 9 territory, Iveson would have lost to Nickel. I'm also talking about this in order to ask Edmonton area readers who want evidence-based policy and more professional government to keep in touch with me so that we can work together to realize a common objective.

In any case I am currently organizing in Whitemud for the Wildrose Alliance and looking to welcome all assistance. The PCs may try to put Hancock up against our best candidate in Whitemud's successor ridings and thereby try to shut us out with a cabinet name, but Hancock is probably stuck to where he lives, meaning we should be able to side-step him in favour of PC and Liberal competitors who are unknown and/or sporting a thin resume and/or unwilling to door knock for weeks and weeks. I can't see their candidate recruitment prospects as likely to be stellar in the current environment.

As implausible as it sounds to overcome the governing party in Edmonton, keep in mind that the NDP has just 13% in this poll and won just 18% within the city limits last year yet hold not one but two seats. I suspect that the party whose support is most unfavourably unconcentrated across the city is the Liberals.

Democrats win upstate New York seat after all

My last post looks somewhat misplaced, since contrary to PPP's usually accurate polling, the White House has reason to cruise around and celebrate the result for NY-23 (not so much for the Governor races). In hindsight, the Republican bowing out in NY-23 and throwing her endorsement to the Democrat was probably big enough that once it sunk in a lot of voters concluded that the Conservative Party insurgent, Doug Hoffman, was too ideological and not enough of a native son (more than 95% of Hoffman's financial contributions came from out of state). There is a good chance that the Democrat will be ejected in 12 months as the Republican party puts some more deliberation into its candidate selection for 2010 House elections. In the background is the fact that that Obama's net favourability is running at 80% in the northeast, as per DailyKos' polling (below), versus -40% in the south:

The real prize was not this House seat anyway but is the Florida Senate seat that opens in 2010. Marco Rubio's conservative insurgency has a number of differences from NY-23, uppermost of these being that the 38-year old Rubio has considerably more charisma and connection to his jurisdiction than Hoffman. The conservatives might well have won in upstate NY had they had a better vehicle than the novice Doug Hoffman. In conservative poster boy Marco Rubio they may have that vehicle.

On another note, I have to give a shout-out to my alma mater(s): The Times Higher Education supplement has ranked the U of Alberta at #59, one of the biggest gainers over 2008, and Lund University, where I did a Masters in European Affairs, tied with the London School of Economics for #67 and claim to Sweden's best university. Hosting an outstanding graduate school in the province of Alberta is not something that just benefits students but is something that benefits all Albertans. I'll be writing more about Paul Romer and his views on education and innovation in the coming weeks, but first I will discuss the investment climate in Alberta and how bold policy moves could help a province that has been sitting on its heels in recent years regain its competitiveness.

third party candidate may win seat in Congress

According to PPP, their weekend polling suggests that in Tuesday's special US Congress election, a New York district near the Canadian border that has elected only Republicans since the Civil War in most of its territory is about to break that trend.

By electing the Conservative Party of New York's candidate.

Newt Gingrich, who intially endorsed the Republican Dede Scozzafava instead of the Conservative candidate, switched his endorsement to the Conservative Doug Hoffman after Scozzafava withdrew this weekend saying, "she didn't want to be the margin of helping the liberal Democrat win... and I commend her for that commitment to help Doug Hoffman win." Praise for Scozzafava also flowed from Sarah Palin. Yet within hours of these remarks Scozzafava endorsed the Democrat, Bill Owens!

The Conservative vs Republican show down was characterized by some in the media as a primary that played out in the general election because a primary wasn't part of the GOP nomination process that selected Scozzafava. But if that's an accurate characterization, it's difficult to contend that Scozzafava is a team player since her reaction to losing this de facto primary was to endorse the Dem. Also vindicating the Conservatives in their launching of a competing campaign to the Republicans is the fact that both the unions (Scozzafava is married to a union boss) AND social liberals such as pro-choice lobbyists and gay marriage advocates were in the Republican candidate's corner instead of the Democrat's. It's one thing for a Republican to run left of his or her Democratic competitor socially (in fact, I think they should do it more often) or fiscally, but on both social and fiscal grounds? How many on-again off-again GOP volunteers are going to jump on-again for such a candidate? As much as people talk about wanting post-ideological, pragmatic politicians, there is a trade-off between this value and the risk of electing self-promoting candidates and a supporting political establishment that sees its power as an entitlement.

Hoffman is far from what I would consider an ideal candidate. He had a disastrous interview with the editorial board of the Watertown Daily Times and he's likely excessively ideological. But having an ideology has the merit of boosting voter participation. Running as a "movement" liberal or conservative brings in more donations (especially if it catches national attention) and new volunteers. According to PPP, although this New York district voted for Obama, the pool of likely voters this Tuesday went 51 - 43 for McCain last year. Polls conducted in September found Hoffman's support ranging between 16% to 19% but he was over 50% in a poll (by Public Policy Polling) by the end of October, a result that should greatly encourage all dark horse candidates without an established party endorsement.

Another third party candidate who is doing well but is not expected to win is independent Chris Daggett for New Jersey governor. The Wall St Journal has warmed up to Daggett, noting with approval that Daggett has advocated replacing some or most income and property taxes with an expanded sales tax. Daggett has lately been gaining in the polls at the expense of Republican candidate Chris Christie despite Christie's demagogic insistence that Daggett is a tax raiser. Says the WSJ, "Mr. Daggett's appeal has grown because he's offering voters precisely what Mr. Christie isn't: A specific plan for controlling runaway taxes and spending." Writers at David Frum's New Majority have made useful observations in the past like noting the superiority of a VAT over a sales tax, and have again contributed to the analysis by noting that the stumbling Christie campaign in NJ is what the GOP should expect when it doesn't run an idea based campaign.

As for Tuesday's developments back in Edmonton, well, we've got Canada's Youtube-nurtured sensation Justin Bieber at WEM from 4 pm to 7 pm. Your 13 year old daughter may not forgive you if this information is forwarded to her, despite the fact video and photo taking amongst the teenagers of today is so compulsive at least half a dozen clips should appear on Youtube within days. I'm sure the scene will be a picture of restraint, just like his appearances have been elsewhere!

if I run for office I never wrote this

Your plucky pundit was laid low this past week by an unkind flu virus. Was it H1N1? I don't know, although it fit the symptoms. I'd recommend that everyone get the shot, if only to avoid doing something imprudent when at the height of the fever, like blogging about a dangerous topic.

I had been thinking about commenting on Ian Robinson's Calgary Sun column "Right wing women rock", which exhorts the discerning political analyst to "look at the shoes", but thought better of it, since I already got myself into trouble over @ daveberta by making the sexist insinuation that if the Calgary Board of Education of a decade ago weren't all female, we might have been deprived of the drama of board members writing "nasty notes" to each other regarding the hairdos and outfits of their fellow Trustees.

In my defence I insisted that I was refraining from judgement, since, after all, I wasn't there to assess whether the crime against fashion was on the level of mere misdemeanor or was rather grievous felony such that an appropriately snarky response or two might have been entirely called for. What was it that Edmund Burke said, "all it takes for bad taste to triumph is for good [wo?]men to say nothing," or something like that? So I'll just stop right there. Well, OK, maybe I won't; - I have to question Robinson's conclusion:

We've got Elisabeth Hasselbeck.

Checkmate.

Might this wrongly imply that there is just one trump card in the deck? Although Mrs Hasselbeck does a redoubtable job of sporting a McCain T (above left), perhaps Meghan McCain (right), who occasionally subs for Hasselbeck on the View, would also be up to the task? I'll certainly grant she may be altogether too libertarian, but how can Twittering under "-ette" not be seen as righteously defiant femininity?

@McCainBlogette: I love being a woman. I love being a Republican. I am incredibly in touch with both of these things. Neither is going to change

If that isn't unchange you can believe in, what is? Ms McCain tells us what we all want to know:

@McCainBlogette: my shoes are steve madden, my nail polish is essie punchy pink for those that asked

Given her use of the plural here ("those") I wasn't alone in my inquiries!

Too girly-girl? How about geeky-girl? Consider everyone's favourite fox on FOX, Marina Orlova (left). Someone might object that just because she appears on Bill O'Reilly's show that doesn't mean she's a right winger, but I'd point out that she's a Russian philologist, and do you know of a Russian philologist who leans left? Checkmate.

conservative fiscal policy and meaning it

While the greatest dangers of the financial crisis may no longer be acute, chronic fiscal challenges remain for most western democracies. Demographic change in particular means that higher levels of saving and investment, both publicly and privately, are necessary if standards of living are going to continue to improve.

What are the options for ensuring this?

The #1 priority in my view is continuing with tax reforms which have been occurring in most jurisdictions (Alberta not being one of them) that encourage the shifting of income from consumption to savings and investment. Even if governments were to start diverting massive amounts of their tax revenue away from consumption by holding the line on services and building up financial and physical assets, tax revenue is only a fraction of a jurisdiction's total public and private income and the private sector's contribution, or lack thereof, to the capital stock, whether it be financial or be physical (property, planet, and equipment) has more impact.

But leaving aside further discussion of these tax reforms for another day and restricting our analysis to the income going to government, how can concerned citizens ensure that their governments are going to be genuinely conservative with the resources allotted to them? Although balanced budget legislation is a possibility and is the first proposal I will review, it is but one of many.

Balanced budget legislation

The two basic drawbacks to "no deficits" legislation are the same two problems we will encounter with a lot of proposals, and that is that 1) the policy deals with a flow instead of a stock and 2) governments can and do ignore such legislation. re point (1), a balanced budget requirement can help in that it sets a target minimum contribution to the stock of capital over a period, namely that it be non-negative (zero or higher). But there is nothing inherently problematic with a negative contribution (withdrawal) from the capital stock over some short period since that does not necessarily mean that the total contributions to and growth of the capital stock over the long term will not be superior to some other jurisdiction which makes a null or a positive contribution over every period. Nonetheless, even if the red/black distinction is ultimately an arbitrary accounting measure, it is still an occasional target, and as the Nudge book I mentioned in an earlier post points out, targets have value. The book's authors note how public urination facilities became a lot less messy when users where given something to aim for. Indeed, one could note that Alberta's current fiscal mess started when government revenues cycled upward and former Alberta premier Ralph Klein lost his target.

Legislation that limits government spending to inflation plus population growth

Again, this would set a target for a periodic flow instead of for the stock that actually matters, but it is a superior target to the balanced budget target since it does not mandate cuts at the worse possible time (during a recession) and mandates less spending proportionate to the economy at the best possible time (when the economy is growing quickly). In an interview with the Canadian Taxpayers Federation in September, then Wildrose Alliance leadership candidate Danielle Smith supported this target but added a proviso that spending also not exceed GDP growth. While this response had the virtues of garnering an A+ grade from the CTF and ensuring that the size of government shrinks relative to the economy not only when real GDP per capita is growing but also when it it shrinking, most economists would consider this additional restriction a mistake. The proviso ultimately undoes the advantage over the balanced budget target by being pro-cyclical: forcing government spending cuts when the economy is shrinking. While left leaning economists like Paul Krugman were demanding massive stimulus spending earlier this year, centrist organizations like the OECD were also urging national governments to pass large stimulus packages, and conservative economists like Greg Mankiw were not opposing the stimulus spending per se but rather acting as the voice for skepticism about how effective the particular proposed stimulus expenditures would be. It was generally recognized that "inaction on sound stimulus is indeed harmful." In almost no case was any prominent economist calling for prompt cuts to government spending. As another writer for the Economist notes, "Faced with growing demands on unemployment assistance, [when] states are forced to cut spending elsewhere... this is procyclical behaviour, which may act to increase unemployment further, forcing additional budget cuts, and so on." When one sets aside ideology for evidence based policy, the evidence from the Great Depression suggests that cutting back government expenditure at the same time that consumer expenditure is in decline creates the grave risk of an economic death spiral. Adding the GDP proviso is unnecessary, because when real GDP per capita growth (GDP growth less inflation and population growth) is negative that is by definition temporary (if real GDP per capita is in permanent decline the whole point of economics would be defeated). In other words, the size of government is also a stock, such that whether it is shrunk in every accounting time period is not ultimately germane to the real objective. Real GDP per capita will increase over the long term, meaning that over the long term the size of government relative to the economy will be reduced without adding a further constraining proviso to the inflation + population growth limit. I would also argue that the GDP deflator should be used in the place of "inflation" (I've equated the two in my discussion here) but that's a technical objection.

Legislation that requires a proportion of revenues (often a subset such as supposedly "non-core" revenues, e.g. natural resource royalties) be saved or invested

This target is part way between the above two targets, since while it shares with the inflation + population growth limit the advantage of not requiring cuts during a recession, under this target both spending and saving would grow in lockstep during boom times without an upper limit such that spending growth could still be very high. Again, when at economy is peaking an expansionary fiscal policy just encourages increased prices, and the increase in government purchases shifts resources away the private sector, a phenomenon known as "crowding out."

Combining a capital stock associated limit on spending (excluding infrastructure spending) with mandated revenue hedging

This proposal is my favourite since it has what I believe is an enormous advantage over the other proposals, namely, that governments will not be able to ignore the target because they simply will not have the money to violate the target. In the Alberta of 2007, for example, the government's positions in currency and energy futures would have been marked to market and the government thereby required to plow its windfall royalty income into international hedging markets. In 2009, we would see billions coming back to the province from these same markets. I would exclude infrastructure spending since this constitutes physical investment. While it is possible to invest poorly, and indeed the Alberta government has a consistent pattern of buying high and selling low by choosing to "buy" infrastructure assets when the market is at a top, it is still investment, and by mandating hedging the government's discretion to "buy high" will limited. Stock associated limits to spending could be akin to the covenants that bondholders demand from issuing corporations with respect to the health of their balance sheets as opposed to just their income sheets, or they could be the sort of constraints relatively sophisticated regulators apply to financial institutions (see Basel II), e.g. limits informed by Value at Risk modeling.

"Stock" associated limits to spending discretion may prove too complex to constitute a political campaign plank relative to a readily understandable limit like no more than inflation plus population growth, but hedging, while complex to explain in detail, is quite straightforward as a concept and the general idea that the citizens of Alberta are bondholders and shareholders in their government is also a fairly simple one. Should a politician's pay be tied to the size of the Heritage Fund à la a private sector executive's? The corporate analogy is worthy of consideration, not least because it could ensure more professional and competitiveness-oriented management.

I believe that this is THE challenge of our age. Do we leave something behind for the next generation or not? If we are serious we will not just talk about how we intend to start showing some willpower with respect to the cookie jar, we will explain how it will be placed outside of our reach.

UPDATE October 26:

The Wall St Journal notes that after posting a $1.4 trillion deficit in 2009, the US House of Representatives is now moving on spending bills that would grow domestic programs by a further 12.1% in 2010. The WSJ also observes that "real family incomes fell by 3.6% last year" and the point I wished to make about spending growth that is higher than GDP growth but no higher than inflation plus population growth is that this would or could maintain government services for consumers whose real incomes are falling. Although government would grow relative to the economy during this period of decline, there would no increase in real government services per person and the proportionate growth in government would be temporary. If government services are to be cut back as opposed to just kept from growing further, they should be cut back when real incomes are rising.

But I may have been imprudent to take issue with Danielle Smith in this context. As Don Martin observes in a revealing National Post column, "Ms. Smith was on an Ottawa talk show with me this week and, even though it was still pre-dawn darkness in Calgary, she batted every question out of the park..." The contrast with Sarah Palin being interviewed by Katie Couric (to take one of the most infamous episodes) could not be sharper. The takeaway fact with her is that she is one of the sharpest policy minds in politics, yet getting that most elementary of messages through the North American noise machine will be enough of a challenge without bothering with nuance. This morning Danielle ended up on the website of the Charleston (South Carolina) Daily Mail as "the Sarah Palin of Canada." How does this end up in the mainstream media? The Charleston Daily Mail writer uses the Canadian media as cover:

I figure the Canwest News Service knows something about Canada and the news service has declared Danielle Smith, the new leader of Alberta’s Wildrose Alliance, the Sarah Palin of Canada.

In fact the Vancouver Province writer who is cited here put a big question mark at the end of its "A Sarah Palin for Canada" headline, not a period. But with respect to which MSM outlet surrendered its gatekeeper role to the commercial appeal of another "Sarah Palin" headline that would indeed be Canwest since it was their writer who made a story out of a blogpost by 22 year old Colorado Springs blogger Adam Brickley. The meme was then picked up by Global TV Edmonton and the Examiner.