Policies that make you

I went to a party last night and I realized the remnants of Canadian social democracy brought up a generation of refugee children who came here throughout the 1980’s and early 1990’s, and who are from the Horn of Africa and who are A M A Z I N G, sassy, strategic, progressive, funny and insightful. Now that our little H of A community has come of age I especially want to say “All praises to the young Idil. Toronto, you did all right”.

Straddling the gap between charity and social justice, lost lives, and a changing immigration system bent on penalizing social citizenship and rewarding cold hard cash, last night’s party also reminded me that remnants of Canadian social democracy also gave us Baby Blue Sound Crew (Sean Paul and Lil X) plus Kardinal Offishall and Jully Black.

“Beyond their shared talents, what these names have in common is a little-known initiative of Ontario’s NDP government: a program called Fresh Arts. Fresh Arts was developed under the umbrella of JobsOntario Youth, part of the larger JobsOntario training and employment program the NDP government introduced to address the labour market fallout of the early ’90s recession.

Fresh Arts attracted young people of colour from areas the city now designates as “priority neighbourhoods.” Then, like today, these neighbourhoods were characterized by large immigrant populations, racialized poverty and high unemployment — most strikingly, youth unemployment.

[…]Yet, like other efforts to address systemic racism […](such as the Anti-Racism Secretariat), Fresh Arts fell victim to Mike Harris’s Common Sense Revolution. Harris ended JobsOntario Youth, and with it, Fresh Arts.”

http://www.thestar.com/opinion/editorialopinion/article/930187–remixing-urban-education

Institutions make and break us. But sometimes the remnants of once ambitious institutions can make us, long after the real thing has departed the scene.

But all the same let us banish all talk of gravy trains and a common sense revolution. There is sense in the commons, but to know it means we have got to get down with the commons, not atomize it into a million seemingly fragmented pieces.

The Euro: A perfect case study in political economy: Krugman vs the other Gordon

One of the problems with economics is that it tends to narrowly parse its objects of inquiry. That is, it suffers from a deranged elegance: too few factors are considered and the ones that are get so rendered that they rarely resemble the original beast. It is curios in this respect that Paul Krugman should play the church mouse and Stephen Gordon the Scrooge. But hey I come from an Anabaptist tradition so what do I know. Between simply getting for free through a culture of potential heresies in the margins and a culture of perfecting the reformed holy writ something almost always creeps in.

Shit happens and in this, the Euro, Gordon is closer to the mark than Krugman.

As Gordon (Stephen not to be confused with the other venerable Gordons: different breed I gather) argues:

The euro project had much more to do with advancing the goal of promoting an ever-close political union than implementing a sensible monetary policy. As the current crisis has shown, a common currency is hard to sustain without a central government that is able to redistribute income from one region to the other. It seems to me as though the people who pushed the common currency hoped that by the time the euro was put under pressure, the central government with the necessary powers of redistribution would be in place.

I think Mr. Gordon is on to something but he does not go far enough. Both right and left in Europe feared the Euro was part of a broader project of cajoling EU countries towards a more neo-liberal policy paradigm (perhaps one which Gordon would support). The point was to force an independence between the central banks and potential or actual “political” interference (again something Gordon would probably support). Note that in Sweden the fight over the adoption of the Euro played itself out in somewhat this way. Interestingly, both the social democrats and the “bourgeois” parties wanted the Euro. The popular left did not because despite the functional independence of the SCB the popular left wanted the possibility of a bank that could be capable (if forced) of taking everything from exchange to inflation rates into consideration.

The other side of the Euro debate was the desire to make sure that the EU was not plagued by beggar-thy-neighbour monetary policy–reasonably understanding that a race to the bottom could be negative sum. And I think this is why the putative left establishment in Europe supported and continue to support the Euro.

Krugman is thus naive; the Euro was never a mere technocratic exercise designed to reduce transaction costs. Yet Gordon is equally naive for different reasons. The Euro was only in part about transaction costs and only in part about redistribution (although as Gordon notes redistribution is the spoonful of sugar that was supposed to make the medicine go down) it was also in large measure a plan to take the perceived candy jar away from the children–politically accountable national central banks.

In this regard Canadian central banking works because politically speaking it is free to rest just above whatever the FED decides. Thus this why the BOC never goes offside: it takes its cues and dues from the FED not parliament. The EC could not guarantee this unless all were brought to heel: thus the Euro.

If we had a less independent central bank in Canada I suspect Gordon would be singing a different tune.

Selected Central Government Debt Ratios: An image begs a thousand questions

When discussing with my undergrad students why I thought Japan Inc. was bust I trotted out the graph below.  However, this morning while looking at the graph several questions came to mind.

1) From 1998 – 2008 what was average real interest rate in Japan and how does that compare to the ten years previous to 1998?

2) What has been the average level of inflation in Japan since 1998?  Again how does that compare to the 10 years previous to 1998?

I already know the answer to those questions but I would have not arrived there by any HAT (highly accepted theory).

3) Why are we even talking about programs cuts in Canada before it is clear that the world economy and the US economy has started a robust recovery? And why especially when Canada is way below the advanced capitalist curve (in terms of debt to GDP)?

Click for larger image

EI Claims Up in September

The bulk of the descriptive meat is here:

“Continued large year-over-year increases in EI beneficiaries in large centres in the West

EI data by sub-provincial region, sex and age are not seasonally adjusted. Therefore, they are compared on a year-over-year basis.

In Ontario, the number of EI recipients more than doubled in 10 of its 41 large centres between September 2008 and September 2009. In the southern part of the province, Hamilton and Kitchener saw the fastest increases in the number of beneficiaries. In Hamilton, the number of EI recipients rose from 4,800 to 10,400, while in Kitchener, the number increased from 3,900 to 8,400. At the same time, the number of EI recipients in Toronto rose from 46,300 to 86,600.

In the northern part of Ontario, Greater Sudbury continued to experience a sharp year-over-year increase. The number of EI recipients rose from 1,500 in September 2008 to 3,900 in September 2009. At the same time, employment in Greater Sudbury declined, mostly in the natural resources sector.

The large centres of Alberta with the fastest year-over-year growth rates were Grande Prairie, Calgary, Medicine Hat, Red Deer and Edmonton. In Calgary, the number of people receiving regular benefits increased sharply from 4,000 to 18,800, while the number of beneficiaries in Edmonton rose from 3,800 to 14,900. These steep increases coincided with year-over-year employment losses for the province in manufacturing; natural resources; and retail and wholesale trade.

In British Columbia, 15 of its 25 large centres had twice as many beneficiaries in September 2009 compared with September 2008. In Vancouver, the number of beneficiaries increased from 12,600 to 31,300, while in Victoria, the number rose from 1,600 to 3,700. During this year-long period, employment losses in the province occurred in a number of industries, with the largest declines in construction; professional, scientific and technical services; manufacturing; and transportation and warehousing.”

The full report is here.

Styalised facts being what they are: CD Howe, the Fraser and CCPA

Some things just pass as fact when further scrutiny turns things around a bit…or at least requires a couple of qualifications. When I see words like *always* and *never* my bullshit sensor goes off the scale.  As for example in this passage from the good cop bad cop of Canadian economics blogs:

One can predict with a remarkable degree of precision the conclusions of such think-tanks as the Fraser Institute (‘markets always work’) or the Canadian Centre for Policy Alternatives (‘markets never work’). With the notable – and laudable – exception of the work of the CD Howe Institute (disclaimer: I have nothing to do with the CD Howe Institute)…

I will grant this much, the Fraser has never made an argument that I am aware of that argues for more, bigger, etc.,  government (although I stand to be corrected can one of readers find some contradictory evidence).  Does such a claim stick to the CCPA?  Last time I checked, the CCPA was in favour of *market based* approaches to climate change.  Not only that they have shown interest in a VAT tax progressive income tax trade-off.

So what gives here?  I dunno perhaps just misplaced centre of the road “ho hum we are the only ones who are balanced around here.”  Yet my suspicions get narrowed when I focus in on the statement:  “(disclaimer: I have nothing to do with the CD Howe Institute) .”  There is that absolute *nothing*.  Hard sell brother.  Word of advice: leave the absolutes for God.  However, the point is, your blogging comrade in arms, and arguably the majority contributor to said blog’s traffic going by comments (110-8 is hard to deny), is an economist affiliated with the the CD Howe.  I link him not because I think I have uncovered some mysterious conspiracy.  Your CD how affiliated economist has been quite open about this. Why, indeed, hide it?   Ah schucks *nothing*.  Forgive me, but your blog is not sub-titled “where I square off against the left, middle and right of the public debate on economic policy, but leave 75% of the floor to the CD Howe.”

But where is the evidence that the CD Howe is balanced: as in neither for or against markets (to stay with a worthless solipsism)?  Some young beaver should do a little qualitative research and see just how many times the CD Howe has come out in favour of more market based solutions rather than less.  If I had to wager I would put at somewhere around 20-25% gov and the rest to the putative markets.  But your unflinching belief that 25 (gov)-75 is the 50-50 scientific balance betrays more than nothing and less than everything.

Lunacy on Loonie spreads to the Department of Finance via the Bank of Canada

At some point we are going to have to throw in the towel and conclude that there is a concerted effort to promulgate the noble lie.  It was one thing when the business press argued that the BOC faced technical limits to their capacity to retrench the value of the Canadian dollar, and yet another thing when almost every commercial bank economists pushed the same fallacy.  But now no less than the BOC and the Department of Finance, respectively incarnate in Carney and Flaherty, are pushing the same argument.  The FP reports:

Bank of Canada Governor Mark Carney said on Tuesday that foreign exchange intervention did not usually work without complementary policy moves.

“I agree with what the governor of the bank said yesterday …. that it is a limited tool,” Mr. Flaherty told reporters.

At least Carney was smart enough to add the vague qualification “complimentary policy moves.”  Flaherty of course stripped it down to the most elegant version of the Nobel Lie.  For those looking for further detail about why it is simply not true that the BOC is constrained in its capacity to devalue the dollar go over to worthwhile Canadian and read the series of posts on this subject.

So I am curious why would the BOC who most definitely knows what Worthwhile Canadian knows be misleading the public?  The only thing I can come up with (because I do not assume people are dumb) is that the neither the BOC nor the Canadian government has any interest in a policy that would be largely regarded as one of competitive devaluation.  So instead of fight the policy issue out in public on its merits they are attempting to smother it under a “technically not feasible” argument.  That is, they are doing what the BOC always does.  Depoliticize and dispense .

The most noble lie

Are currency traders and Bank economists dumb as a sack of hammers?

The short answer is no despite what has been argued here and here.  Bank economists may be a comfortable and no doubt arrogant bunch (imagine combining the natural arrogance of economists with the comfy smugness of Canadian bankers… thankfully a cocktail party I will never be invited to).  But do we really believe they do not understand the difference between raising and lowering the value of a currency and the different mechanisms required for each?  I think they probably do.

So does Erin Weir over at the Progressive Economics Forum.  He makes a cogent case why bank economists may be arguing (erroneously) that the BOC does not have the resources to intervene in fx markets to depreciate the CDN dollar.  In a nut-shell Erin argues that the CDN banks are looking to do a little foreign financial asset shopping and that a high CDN dollar makes that prospect even more lucrative.  I like this explanation because it does not rely on bank economists being stupid, but, rather, hard-working employees serving their employers to the best of their abilities.  And I if that requires misdirection so be it.  Let me put it this way: I think they are bank employees before they are economists.

When it comes to economists and bankers I always prefer rational actor models.  But hey ad hoc explanations are always amusing. And insinuating that people are stupid does allow one to feel superior I suppose.

Next comes currency traders.  Are they as dumb as a sack of hammers?  Again I think not.  Aggressive if jittery risk takers…you bet…stupid nope.  They have played this game before and it is called chicken.  I bet they do not think the BOC has the nerve to go into the fx markets in big way, that the BOC does not want the precedent; that it does not want to fuel the notion that the value of the CDN should be set be fiat etc., etc.

Sure, yesterday the loonie lost two cents on Marky Marc’s: “I really mean it this time, I just might do something.”

Today it was back up a cent by noon trading.

The game of chicken is on.

Socialists and separatists do liberals a favour

So bloglandia is up in arms that the NDP could be bought off for a mere billion in EI funding and the BLOC is proudly bragging about delivering the Christmas turkey to Potvin et Bouchard. Sure at this level it makes it look like a seriously unholy troika of socialists, separatists, and reactionaries. Did you ever see such a beautiful union of the red, blue and white?

But that is all the surface. In fact the NDP and the BLOC just rendered the liberals (and themselves a huge service). Here is why. When the conservatives are toppled on a non-confidence motion and are forced to run in a general election it will be hard to argue, upon loosing that election, that  relying on the support of the socialists and the separatists is somehow treasonous.

For you liberals who don’t see how good this is for every party save the conservatives just content yourselves that pay back is as they say a ….

to coalesce or not coalesce: much to do about nothing

First to define terms:

coalesce [koh-a-less]

Verb

[-lescing, -lesced] to unite or come together in one body or mass [Latin co- together + alescere to increase]

coalescence n
coalescent adj

//

Collins Essential English Dictionary 2nd Edition 2006 © HarperCollins Publishers 2004, 2006

Second, what are they pouring on their morning cereal over at the Globe and Mail?  Winge winge winge.  Sorry ladies and gentlemen coalition politics is minority government politics.  Relying on the support of two smaller parties makes no difference than relying on the support of on larger one.  What counts is a plurality of votes on major legislation, money bills and confidence motions.  Full stop.

It is really quite disquieting to watch the G&M deliberately attempt to mislead Canadians about the parliamentary system.  Yes should there be an election and should both the liberals and Cons be in minority positions 9in the sense they both have large but not an outright majority of seats) they are both free to shop around and see if they can get a plurality of support in the house. Live with it.  There is nothing untoward about any of this.  The Globe should simply be telling Canadians this is the reality of our political system and that at election time they should keep it mind.

There are way more important issues to talk about than this non-issue side-show.  But then maybe that is why the Globe is pushing it.

The War on EI reform Commeth

Conservative economists are up in arms that anyone could suggest lowering the qualification requirements for workers wanting to access an insurance program they are obliged to contribute but for which they do not necessarily have access.

Case in point, Stephen Gordon an economist at Laval was interviewed on CBC and he had the temerity to assert that the opposition parties were purporting to return Canadians to the dark days of UI dependency where workers worked 10 weeks and then took a “vacation” (10-42 which he admits was a small group of “users”).   An honest look at the previous programme would conclude that although there was a small user base of “bilkers” the other group was more a victim of a defunct east coast growth paradigm, entrenched rural local business interests and governments bereft of vision (with some irony what we might call an “industrial policy” the very thing conservative economists hate).  It would in fact take the complete collapse of the fishery to provoke a fundamental rethink of the structural dependence by design aspect of the old UI system. Apparently this is wrong.  They still have not yet arrived at areal solution for the structural dependence on the EI program.

But all of this is beside the point.  No one in the opposition is suggesting a return to UI as a guaranteed income scheme.  Although I do not know why this should disturb a conservative economist?  Conservative economists tend to love programs which enforce some requirement to work.  Let us call this their Victorian vice.  Indeed the reason conservative economists like the WITB is because it gives an incentive to welfare recipients an incentive to work.  It is therefore somewhat perverse that they should prefer to exclude formally employed workers from the EI system so that they can go on welfare and then be incentivised to work through programs like the WITB.  In a bizarre twist during the interview Gordon suggested that while access to the program (which all workers are forced to contribute) should remain restricted those who do qualify should have their benefits increased!  A new moral milestone: not only a distinction between the deserving poor but a distinction of merit between deserving and undeserving workers:  All enough to make a good Victorian blush at the recognition of their Dickensonian sentiments.

But I digress.  Gordon even went further and conceded that relaxing the qualifying criteria would only benefit 2% more of the unemployed.  He went further to say that there were other ways to help the poor: such as beef up the GST rebate.  For a man who does not receive the GST rebate and is woefully ignorant of how much income replacement it would represent it was not only callous it was disingenuous.  It was disingenuous because Mr. Gordon knows full well the EI system should be well funded requiring no draws on general revenue. It was only a fleecing of the program which moved billions from the program to general revenue that voila the program needed extra funding.  As an aside, this is why the finance minister’s suggestion the increased EI payments are partly to blame for the increased deficit ring hollow.  It was that minister who raided EI to make room for his silly tax cuts.

But the point is this, there is no choice between increasing benefits or increasing eligibility if we make an honest accounting of how large the surplus was in the EI fund.  Similarly it is a false choice between beefing up the GST credit or the WITB program or extending eligibility.  The EI fund should be fat; it was raided to pay for silly tax cuts that even the economist in question wrote a long blog post against.  It is therefore disingenuous to turn around and make it a question of where money is best spent.  EI is paid for by employers and employees, the fund was fat, and it was depleted by a raid on what appeared to be its fat in good times.  In short, the trade off can only be posed if one accepts the hanky panky involved in the raiding of the EI fund.