The left and Cash Transfers to the Poor: A Rejoinder to Slander

This seems so elementary that it should not have to be pointed out. Lately it has not been in my nature to get in the way of an over the top, gross generalization founded on spurious sampling techniques paired with the terrorism of gotcha journalism, however, today I am feeling frisky.

Some Guy (SG) has a blog post up about how lefties hate direct cash transfers to the poor. I can’t make heads or tails of this claim including the two random citations of lefties provided: one an individual the other a think tank (now there is rigour if I ever saw it). Unfortunately even the random citations provided were poor choice because in the one case SG failed to read the article—I suspect he is hoping you will too.

But alas we all now know that economists are to be debated not trusted. Inter alia, Duncan Cameron argued for an increase in direct cash transfers to the working, unemployed and non working poor:

“By any measure, minimum wages, welfare payments, unemployment assistance have all declined since at least the inflationary period of the 1970s. All these programs need dramatic improvements.”

There is then some irony that SG should have given his post the title: “An overlooked anti-poverty strategy: giving money to poor people.” Seemingly for SG, an increase in the cash benefits to the poor, working poor and unemployed do not quality as “giving money to the poor” (I will explain why below). And unintended irony of all irony the research reported on SG”s blog on minimum wages concludes that increases in minimum wages under a 40-45% of an average hourly wages threshold has little to a positive effect on employment. Although having an indeterminate effect on poverty.

Hence, I suppose the need for direct cash transfers of one form or another. Like uhm maybe an increase in cash benefits for welfare and EI recipients as Duncan argued? No No No No! Shrieked the vanilla economist! I will explain why further on.

In order to solve this murder mystery we will have to return to the scene of the crime. What seems to have stuck in the quick of SG was this offending remark by Duncan on EITCs as a generalized strategy for poverty reduction:

“Not even the Toronto Star editorial board seems to have noticed the problem is much wider than the working poor, and the solution greater than an earned income tax credit — aka a handout — so that lousy employers can continue to pay poverty wages.”

Clearly EITCs are SG’s preferred poverty reduction strategy—no matter that EITC’s do not have robust evidence to support the claim that they reduce poverty. In the US for example, where the program is much more robust than in Canada, the maximum benefit is around 2,700$ per year for a family with two children and around 500$ for a family without kids. And here is the kicker the EITC is phased out fully at 37,000$ for a two child two working parent family and 24,000$ for two individual no children family. I find some irony in the fact that my middle class baby manual tells me that children cost around 10,000$ a year. Therefore the idea that a 1,300$ (max) a year per child EITC in the US could be held up as major strategy to combat poverty is well simply farcical—albeit better than a kick in the ass I suppose. In any case, this is clearly where the unintended irony of a virgin gives way to self-satirisation—hardly edifying.

But the more important question is why would an economist be flogging EITCs as (a) the only form direct cash transfers should take; and (b), at the same time misrepresent the scheme as a poverty reduction scheme? The second is easier (i.e., more simple) to explain than the first. Classic misdirection—the first learned trick of magicians, pick pockets and con-artists (all of which I have infinite respect for outside of the academy).

However, the first question is more painfully answered. You see back in some early graduate seminar vanilla economists (well actually all economists because all economists have to be able to converse with vanilla economists but the reverse is not true—although some vanilla economist are capable of cross paradigm conversations) are given a tutorial on welfare policy analysis. The problem is that traditional cash transfers from say welfare or EI create an incentive for poor people not to work. All things being equal, why work if your welfare benefits will be clawed back and your earned income will be taxed? The basic thrust of the EITC is that it makes it so that work pays. And this is the real thrust of the EITC—making sure the incentive structure is designed so that the poor have an incentive to work and not layabout on the dole. It is about getting people off of welfare—which may or may not be a good thing—but it is not about poverty alleviation.

As an aside it was this I think Duncan was reacting to. Somewhat perversely, EITC’s act as a subsidy to minimum wage employers in two ways. On the one hand, they increase the labour supply of minimum wage workers thereby ensuring increased slack in their labour markets and thus downward pressure on average minimum wages. And on the other hand, they provide a subsidy to employers because the tax credit mitigates workers demand for higher wages. Perhaps this is why the program enjoys such bi-partisan support in the US.

In sum, EITCs are politically palatable because they “reward hard work” and shun the welfare system while giving the appearance of a concern about poverty. they keep in tact and rejuvenate that old Victorian separation between deserving and undeserving poor (never mind that the welfare system already reproduces this logic through extensive monitoring and what has been over the last twenty years increasing paltry benefit rates with increasingly restrictive qualification criteria).  They are, if taken in isolation as the only tool, a politically expedient, ideologically driven, and an ineffective poverty alleviation strategy sometimes garbed up in progressive rhetoric.

I welcome an honest conversation about a robust poverty alleviation strategy for Canada.  If only vanilla economists would try to meaningfully participate by jettisoning their predetermined policy preferences and erroneous characterizations of other members of the policy community. I for one am ready for a new conversation on poverty reduction in which everything is on the table–and not just facile ideological preferences masquerading as the new true social science.

Bank of Canada Beats a Retreat on Optimism

Well I do not mean to brag but I did argue at the time, along with others, that Mark Carney and the BOC were being overly optimistic to which the usual suspects countered that the BOC had super superior models and modelling acumen. So it was, as it is now that Super Mark and the BOC are beating a hasty retreat from their rosy optimism. The globe reports:

The Bank of Canada cut its benchmark lending rate to the lowest possible, and promised to leave it there for as long as a year in order to fight a recession that is deeper and will last longer than previously thought……

The central bank now predicts that Canada’s gross domestic product will shrink by 3 per cent in 2009, compared with a January estimate for a 1.2-per-cent contraction.

The Bank of Canada also abandoned its relatively optimistic estimate that the economy would rebound to expand 3.8 per cent in 2010. The recovery will be far more muted, with an expansion of 2.5 per cent in 2010, the central bank said.

Mr. Carney and his chief advisers on the governing council are trying to restore confidence amid Canada’s first recession since 1992. Employers have shed more than 270,000 jobs since the country fell into a recession in the fourth quarter, a period during which factories produced at only 75 per cent of their capacities, the lowest rate on record…..

Hmm…maybe we start taking fiscal policy a little bit more seriously now and not its faux ami tax cuts?

Related:

Erin Weir on BoC rate cut.  Better Late Than Never

Last in First out: Harper contradicted again

The FP reports that The CEO of TD bank directly contradicted Harper’s rosy prediction that Canada would be the first country out of the recession.  What is more, he argued that Canadian Banks would not be leading the way as they were going to be forced to deal with the collapse of securitization and foreign funding.

Canada can’t lead global recovery: Clark

Mr. Clark said he did not agree with the U. S. government’s two-pronged approach of addressing the financial crisis and the recession. “They have the view that you can’t have the economy work if the banks don’t; I would say the banks won’t work if the economy doesn’t work,” he said. He added this period of reintermediation, which was fuelled by a “false boom” in consumer demand by artificially inflated credit markets, would hurt Canada, and he did not believe the country could lead the world in recovery.

“Just because our banks didn’t collapse, Canadians are running around saying, wow, aren’t we terrific. But the reality is this economy is going to get whacked just as hard as economies around the world.”

I am not sure that Canadians were running around talking about how terrific our national banks were and drawing the conclusion that we would experience a mild recession and be the first to recover but I do know it has been the Cons talking points for the last month.

Harper: Global Canadian Financial Domination

Remember back before the “there will be no recession or deficit” election when Harper mused about the excellent buying opportunities?  Well he thinks he finally found them. .. err well for Canadian banks that is.  The PM’s latest bout of market savvy was reported in the FT:

Canada’s banks should capitalise on the relative strength of their balance sheets by acquiring assets in the US and other countries, Stephen Harper, Canada’s prime minister, told the Financial Times on Monday….

Mr Harper indicated Canada’s banks could lead an eventual charge toward consolidation, and said he would support such efforts as “an opportunity for Canada to expand its role in the world financial sector”.

“I’m not going to try running banks, but I hope our banks will see this as an opportunity to build the brand – the country’s brand, their own brand – and to expand their scope and profitability over time,” Mr Harper said.

That’s the ticket!  An over bloated financial sector in Canada.  Just the kind of globally stretched, politically corrosive on the body politic, economic crap producing juggernaut that Canada needs as the cornerstone of its economy going forward.

Because it turned out to be such an impressive success for the UK and the US right?

I particularly like the line: “I am not going to try running banks.”   Buddy,  if you can not imagine running a bank why do you imagine you can run a country?

Who is this pie-eyed chruch mouse and why is he our PM?

Harper’s Put and Flaherty’s Flatulence

I tried, I really did.  I tried to ignore Flaherty’s bragging over the weekend and before that I tried to ignore Harpers hubris early in the last week.  But unfortunately I just can’t take it anymore because some nice fellow conjectured:

Now, with exquisite timing, the IMF has popped up with its views on the Canadian economy. And if this report (“Canada is better placed than many countries to weather the global financial turbulence and worldwide recession”) doesn’t vindicate Harper’s speech, I’ll eat it, page by crunchy page.

Yes but Harper went much further than that he said that Canada would be the first out of the recession.  When I heard that little turd on the radio I chuckled and paid no attention after two minutes: yadayadayda.  But then I had to listen to a full weekend of CBC overnight with all the public broadcasters from around the world endlessly cycling Flaherty’s flatulence:  the Canadian regulatory framework is the solution to all of mankind’s problems (boy would they have had egg on their face if they had a majority and changed that regulatory framework to how they and the banks would have wanted it).
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But let us put Harper and Flaherty on the same page.  Canada, by their logic was last into the recession because our financial system was sound and by extension that is the reason we will be first out of the recessionary gates.  Seems like good logic dont it?
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No it is bad logic and here is why.  Let us assume there is not any problem with the Canadian financial system (as in the massive liquidity operation between the banks and the state is just a technical operation: the healthy banks just need lots of liquidity right now ).  But that begs the question of why Canada fell into a recession in the first place.  If it is not related to our financial system then it must be related to Canada’s relative subordination within the hierarchy of the advanced capitalist world.  That is we entered the recession later than the others because we had to wait until the egregious problems in global markets manifest a dynamic in which even our superior banking system could not save us.
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How then does Canada recover before everyone else?  We are price takers not price makers and until prices are made we are simply a lady in waiting.  Explicitly stated: we are not in a recession because of our banking system; it therefore follows that the relative health of our banking system has nothing to do with when we exit the recession.  To reduce again: you can’t have it both ways.

Oh and Dan I will take that action

Economic Forecasts: Roubini makes the Bear’s Case

There are lots of rosy forecasts flirting around predicting a quick turnaround in the Canadian economy.  They all rely on some notion that global effective demand is going to raise commodity prices and thus restore growth in Canada.  So much of this hinges on what the prospects are for future global growth, not just if house prices stop falling and house and car sales pick up a little in the US.

Roubini who has been consistently ahead of the game has an expanded Q&A in the Financial Times. It needs to be read in full.  The point I would make is that any analysis which discounts uncertainty, does not take a more global dynamic approach, and which relies on a couple of discrete sectors is likely to give a false sense of security (or insecurity).

In many ways Roubini makes the point that has been made on this blog several times:  the neoliberal growth model is crumbling and there is no simple sense in which we return to 2006.

The basic difference between the bears and the wanna-be bulls seems to resolve itself to whether or not the present crisis is viewed as deeply systematic or superficially located in some auxillary system.  That is, whether the problem is with the starter of the engine or with the engine itself.

KPMG vs CD HOWE: Canadian Corporate Tax Competitiveness

Travis Fast

There is an old adage going back to David Ricardo that says:

Business men who want advice on how to lobby government should consult with an economist and business men who want advice on how to cut costs should consult an accountant.

A more clever wit than I might rename the above as the Real Ricardian Vice (RRV *tm).

With every election there is some high volume of opinion about the competitive status of Canada within the global capitalist economy.  Typically the left wing parties have been against corporate tax cuts and typically the center and center right parties are for corporate income tax cuts.  In this election the issue has been put in sharp relief.  The Cons have put in 50 billion of corporate tax cuts and the NDP is the sole voice calling for their repeal.

It is a lonely place to be for the NDP given the dominant assumption that causation flows as follows (a causation I should add that is shared by the Greens, the Liberals and the Cons…not that I am shilling for the NDP it just happens to be the case):

Raising CIT = lower unemployment and or lower wages

Why because the standard economic model says that any increase in CIT will be passed on in the form of price increases or unemployment or both.  Price increases retard the purchasing power of wages and unemployment of course kills the capacity of workers to earn wages in the first place.
Either way you slice it the standard model says higher CIT = increased misery for workers.  Those bleeding heart liberal economists they really do love us to death!   But let me just put that to the side and simply concede the field for now to our good friends the REAL economists.

The CD Howe has a much touted study out, co-authored by the apparently irreproachable Jack Mintz (unless of course you live in Alberta), in which the bold claim is made that:

“In 2008, Canada ranks 11th highest among 80 countries in terms of its tax burden on business investment, as measured by the effective tax rate on capital.”

I am no fan of corporate tax cuts but if Canada is the 69th least competitive national jurisdiction in the world we ought to do something.  How can we compete with the top 10 (10-1): Ukraine, Singapore, Mauritius, Hong Kong, Latvia, Bulgaria, Nigeria, Kenya, Belgium, Serbia?  In a sarcastic fashion, I am of course, “gilding the lily”, as it were.  But the difference between the top ten and the bottom ten suggests a positive correlation between higher levels of CIT and higher levels of income, stability, democracy and the like.  And a less honest wit than I might want to ask the CD Howe why they want to transform Canada into a quasi-autocratic third world country given the correlation. But let me leave the negative correlation between low CITs and democracy stability and income to one-side.  That is, let me assume it is a spurious correlation because every single social scientists knows that correlation is not causation: it is the first thing we are taught!

The question remains: is the CD Howe ranking index an accurate picture of Canadian CIT competitiveness?  Well it depends.  If you think that those who are paid to lobby government for beautiful gifts are more reliable than those who are paid to tell corporations what their true cost profile is in a given country than yes the CD Howe is the way to go.  But if you think multinational accounting firms, who after all sell their services to help corporations pick the least costly sites for production, are more authoritative, then you get an entirely different picture of Canadian CIT competitiveness.

KPMG has an annual publication entitled the Competitive Alternatives Report.  And this year they had a special supplement on CIT.  In their results they benchmarked selected national jurisdictions (countries) to the US.  The question they asked was straightforward: if we were to advise clients (corporations) where they should set up shop where would be the least costly countries?  Shockingly Canada, in their sample of 10, ranked the 3 rd most competitive.

Now the more astute among us would note the difference of the sample size: CD Howe=80, KPMG=10.  As such maybe the sample of the KPMG study was biased.  I thought about that.  To rectify that possibility I took the CD Howe percentages on Cit and reduced them to the same form as the KPMG study, i.e., the USA = 1, and then put the KPMG numbers into a table which allowed for a direct comparison of rankings of the SAME countries.

As the table clearly indicates there is a huge disparity between the accountant’s rankings and the CD Howes’ rankings.  Why?  I would politely suggest the difference is accounted for, in the first instance, between what the clients are paying for.  The CD Howe is paid to make arguments for lobbyists who are paid to get gifts from the Canadian government whereas KPMG is paid by the self same entities to give good advice on the real costs of doing business.   This is an interesting result.  The same clients are paying for two different products.  Imagine that?  It seems contradictory until we return to the premise of this post:

There is an old adage going back to David Ricardo that says:

Business men who want advice on how to lobby government should consult with an economist and business men who want advice on how to cut costs should consult an accountant.

Former Fraser Institute Analyst and Harper Staffer Plagarized

The CBC has reported that the staffer did it.  When offering his resignation he said:

Neither my superiors in the Office of the Leader of the Opposition nor the leader of the Opposition was aware that I had done so.

The article goes on to say that:

Lippert, a former policy analyst for economic think-tank the Fraser Institute, has announced his resignation from his current position working in the Conservative campaign headquarters.

A former analyst for the Fraser Intitute.   Shocking given the quality of research over there.  The irony of it all.

Enough already: let them run on their past actions and words

I am sure my head is going to blow up if I read one more story about this election where such and such candidate is being asked to resign for something they said or did in the past.  Let the voters in that riding decide.  Furthermore, letting fringe actions / ideas out in the open for debate is for the most part a good thing.  They can be debated and where in serious error corrected.

If such and such a riding wants to elect a former or existing streaker, stoner, conspiracy theorist, potty mouth, eccentric, borderline racist etc., that is their business.  We have had Prime ministers that talked to their dogs and gotten policy advice from fortune tellers.  We have a sitting Premier of a province who was busted for drinking and driving a SUV well on vacation in Hawaii.  To be human is to err and it takes all kinds to make a democracy go around.  Enough with the moral panicsters and the politeness police.

Liberals indecisive on policy: certain on political pork

The liberals have been and are being incredibly weak in the run up to and during this election.  We can usefully look at the liberal plan mark 1 and mark 2.

Liberal environmental plan:

Mark 1: Carbon tax good: direct, elegant, transparent and least easy to game.

Mark 2: Revenue neutrality bad: done for political expediency but actually confused the message and undermined the strength of the plan.

Deficits:

Mark 1: Deficits are sometimes necessary: infinitely reasonable proposition.

Mark 2: Deficits will never happen with the liberals in power:  Hmm, which crystal ball do they have?  Even in the face of a protracted recession?  Wow have they been sleeping? The whole world is old school Keynesian now.

Income trusts:

Mark 1, 2 & 3: Same bad policy position.  Don’t trust me ask Jack Mince.  If he and I are on the same page you know trusts are bad policy.  Probably one of those policies that we could fairly describe as pork that will produce bacon for the party coffers.

Consequence:

The liberals look indecisive on good policy and consistent only when it comes to saving their own bacon.  Partly they are the victims of their past success in out-flanking the right on the issue of fiscal “prudence” and the evilness of deficits.  The liberals of course used these two battering rams with great effect against the left-flank, both inside and outside their own party.  To call that hysteresis, is to fail to appreciate irony.