The Economy IS Important, but it operates Within the Environment

Most economists will agree that most economic troubles are the cause of human action, but there are some that are not. The environment can cause economic disruption when natural disasters damage a country’s assets, and force savings to be spent on rectifying the problems caused.

Harper et. al. don’t seem to get this. They claim that the economy will suffer from too much environmental protectionism, but I would say that a far greater danger to the economy is environmental disaster.

Don’t get me wrong, sometimes I support the development of industry that may appear environmentally damaging on the surface, because I believe that what might seem damaging at first might actually be good overall, if it reduces the amount of supply coming from bigger polluters with little to no environmental protections in other parts of the world.

It is impossible to abruptly stop demand on some things in the absence of replacements. Too fast, radical change is likely not the best approach to the environment. We all need to be able to heat and power our homes, commute to work, etc. but we need to find the best way to expedite the development of efficient and affordable, green technologies. We should always be working toward better solutions for a greener Canada, not just when we believe we are nearing a crisis. I strongly believe that the best approach will be through government incentives for private sector development because we will have a bigger pool of ideas to draw from and we won’t be limited to the ideas of those who are on the government payroll.

The worst thing we can do, is absolutely nothing.

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How to Make Policy That Serves Us, Without Hurting Us

Everyone that cares about politics, should have an understanding of economics. Irwin Schiff’s cartoon, How an economy Grows? provides an easy to understand basis for economics, that doesn’t make the eyes glossy. One shouldn’t take everything  literally, and I’m not endorsing it in full, but much of the underlying theories are good.

Conservative’s tend to subscribe to Adam Smith’s economic theory which states, “The best result will come from everyone doing what is best for themselves.” This is where the every man for himself mentality derives from, and it is true to some extent. Until Adam Smith’s theories began being implemented, we never lifted the poor, or had a middle class.

This economic theory, which does form the basis for our system was expanded upon into “The best result will come from everyone doing what is best for themselves, and the group.” This is really where we should be. Knowing that if we implement policies that please any group, the benefit may only be to that group, at the expense of the rest. Sometimes though, a benefit that seems to only benefit a particular group actually has benefits to all. Things that provide income support to the unemployed can be the difference between loan delinquency and enough income to sustain loans until employment is found.

Through a reasonable understanding of economics, we can formulate better policy that better serves us all.

Getting more out of job creators

Probably the best and most successful way to get more out of the job creators, is to convince them that they can make more money.

GST, Deficit and Revenue

Stephen Harper has always been a man of strategy. In an attempt to further the conservative agenda, and to make the case for austerity, part of this strategy seems to have been to rob the government of revenue (through tax reductions), so that new spending promises will require tax increases or deficit spending. One of the least beneficial tax reductions was the lowering of the GST rate from 7% to 5%.

Canadian’s aren’t stupid. Let’s make the case to them.

Returning the GST rate to 7% would result in about $11 billion in additional tax revenue, without discouraging business because GST is paid by the end user, not business. It is true that business is responsible for the collection and reporting of GST, but a change in the rate makes little difference to them. The administration involved is the same regardless of the rate.

Liberals have previously argued the case for increased taxes on corporations, but this is ultimately paid by consumers too, and can actually have detrimental effects on the economy and revenue, more than a GST hike would. We do want to convince multinational corporations to report their profits in Canada, not overseas.

Think about it though: If corporations are paying tax on profits, and those profits are earned by selling consumers goods and services, then it is really consumers that are paying the tax at the end of the day, not the corporation. It is just diverted away from the consumers immediate attention. If the corporation feels that it isn’t making the profit it should because of the corporate taxes it pays, then the corporate may increase prices for consumers, and how would that increase  be any different than a GST hike?

Luckily, with GST, we have credits already available for lower income families that can offset the costs of an increased GST rate so that it doesn’t hurt those already struggling to make ends meet. If we increase corporate taxes, however, and corporations raise costs on consumers, then we are limited in what we can do. The increase in corporate tax rates could actually hurt those that need our help.

Consumption taxes end up being a tax on the rich because those that spend more will pay more. It is also something that isn’t forced as a consumer can choose to spend less in order to pay less. The $11 billion or so in revenue that we could gain from an increase could help slashing our deficit, and could be applied to our debt so that the nation is in a more secure financial position. Once the fundamentals are solid, we will be in a better position to expand our social programs.

What kind of mess could we be in?

Think about it: Canada is already in deficit, and cost over runs on the F-35s now total $10 billion more than the Conservatives originally told us.  The figure on the F-35s has gone up from $16 billion to $25 billion, an increase of 62.5%. They cite accounting differences, but what kind of accountant would be off by 62.5%? Personally, I would be pretty mad if my accountant told me that my tax bill was only $1600, then I got a bill from the feds for $2500.

But seriously, a 62.5% “accounting error” could mean some serious problems for Canada:

  • If the same type of error is applied to the deficit, the deficit in 2012 could total: $34.2875 billion instead of the projected $21.1 billion.
  • If the error applies to revenue, it could mean that we are only taking in $159.375 billion in revenue this year instead of the projected $255 billion. This would mean (provided expenses remain unchanged) a deficit of $116.825 billion.
  • If the error applies to expenditures, it means we could be spending $448.66 billion instead of the projected $276.1. Provided projected revenues are accurate, this would mean a deficit of $193.66 billion.
  • BUT IF BOTH REVENUE AND EXPENDITURES WERE OFF BY 62.5%, THIS WOULD MEAN A BUDGET DEFICIT OF  $289.285 BILLION
I’m not saying that the budget is off anywhere by 62.5%, but if they’re off in one department, the likelihood that they could be off somewhere else is heightened.My point is that no matter how they try to dress it up, any kind of accounting error is unacceptable, especially one that increases costs by 62.5%. Depending on where the error is, it can lead to quite a different financial picture.

The Time for Progress: Dentacare, Pharmacare

Let us assume that we have created an economic climate of growth and employment, where there are more people working than ever before. Deficits have been eliminated, and we have a plan to eliminate the debt (which is also important. All it takes is a few economic downturns before the debt burden becomes too great on the nation. This in turn will discourage business and the country will end up digging a deeper and deeper hole trying to stimulate the economy with little success. We need to make sure we have the room to endure downturns.) Things are looking good, and current expenditures are sustainable. It is time for progress.

I know a lot of Liberals and NDPers would like to progress faster than this, but I believe that progress at too fast of rate is self-defeating. Everything ultimately ties back to GDP and the economy. Progress too fast, and the programs will be unsustainable and the case for cuts will be made. To progress without careful consideration of the economy is like borrowing money to buy a new vehicle without having any job security. The case for certain programs (especially those that better help people provide for themselves, or help those that are unable to) can be made all the time, but the “nice to haves” need to wait until we can afford it.

The first “nice to haves” I would like to see implemented are Dentacare and Pharmacare. These types of programs would benefit almost everyone, and not just a select few. It would be nice to know that getting sick and needing prescriptions, or needing to fix aching teeth, wouldn’t mean less disposable income. This could also give Canada an additional competitive edge to employers.

Progress is good, but we have to make sure that it can be sustained. Otherwise we become our own worst enemy.

Empowering workers: Unemployment and Jobs

The best social policy is one that helps someone provide for themselves through employment. People need jobs, but they need good paying jobs. Trying to convince private sector employers to pay good wages if they don’t feel the need to is almost impossible, but there is a way to do it.

We need to strive to obtain a low unemployment rate by creating private sector jobs. To create these jobs, the private sector needs the confidence to invest in Canada. When big businesses are making decisions, the accountant takes all costs into account (except, of course, Conservative accountants) before they determine where they intend to set up shop.  Hydro rates, taxes, labour prices, social programs (as benefits that they might have to provide employees otherwise, such as healthcare), and the job market all come into play. Businesses that are already set up  in Canada (factories for instance) might be willing to absorb higher costs to avoid start up costs elsewhere, but those that are planning their start up aren’t going to invest in Canada if they see it as being more affordable somewhere else. This is an undeniable fact in the way many businesses make decisions. Everything is a number. To attract more employers to Canada, there has to be some kind of competitive advantage. Right now, some of Canada’s advantage is the fact that our banks are solid, but working to foster job creation to reduce unemployment will best empower workers.

By fostering job creation, unemployment rates drop. As there are more employers looking to hire than there are people looking for work, employers will have to pay higher wages and more benefits to attract employees. It makes sense though, doesn’t it? If you really need milk but there’s only one store that sells it, they could charge you more because the market would favour the retailer. We want to create a job market that favours workers.

The second component to this is to anticipate for skill shortages and take measures to accommodate for that, at least to a degree. An inefficient job market will have more positions to fill than there are people to fill them, but the skills of the unemployed won’t match the jobs that are available. Liberals can help by supporting training programs that will help meet demand. In many respects, lower unemployment will make it so more employers will be willing to (or forced to) advance and train employees because it will be harder to find people to hire with the skills needed.

Taking measures to support job creation and reduce unemployment is the best way to guarantee prosperity. With new business in Canada and more people employed, government revenues will go up, deficits will go down. Once we have finances in order, we will be able to implement social programs  and won’t face as much criticism in doing so.

 

Political Shift: Progressive Conservatives and Blue Liberals Struggle to find a home

The 2011 election gave rise to the NDP in a way that nobody could have predicted. It left Liberals wandering the political wilderness. Our strategy in 2011, as it often has been was to attract NDP voters to the Liberals to stop Harper. With the NDP rise in Quebec, NDP votes went where they belonged. With the NDP.

What is interesting, is that it provided Harper with a new strategy that may have well contributed to him gaining his much sought after majority.  Traditionally Liberals have claimed that a vote for the NDP is a vote for the conservatives, and that progressives should unite by voting Liberal. As the political tides changed, the new argument for the Conservatives was that blue Liberals and Progressive Conservatives that aren’t comfortable with the economic position of the NDP should unite by voting Conservative because a vote for the Liberals is a vote for the NDP. As a blue Liberal, or Progressive Conservative myself, it was a good argument.

Liberals have to move away from the old strategy and recognize that votes from the NDP will now belong to the NDP. We have been in power, had the chance to implement policies that would woo NDP leaning voters, and didn’t. NDP economics are not responsible and are likely to do more harm than good, so I’m happy we didn’t implement NDP-lite policy, but it means that in the new political climate, NDP votes will go to the NDP. Liberals need to seize the votes of those that are more fiscally prudent.

To do this it is important to be conscious of what they believe in. Progressive Conservative has often been thought to be an oxymoron, but it isn’t. They, like blue liberals are fiscally conservative but socially liberal, but what does that mean? At the core I think it means to be fiscally prudent while keeping an open mind, but I will try to elaborate further.

On the fiscal side it is a strong belief in maintaining balanced budgets, paying down debt, keeping the economy strong, and planning for the future. It means working to keep a low unemployment rate, because this will give the most bargaining power to employees so that they can earn better wages and benefits. It means limits on the roll of government, and setting priorities on what’s important, what’s not. Cut are sometimes supported if it’s believed that the wrong priorities have been made. Sometimes these cuts are so that other priorities can be made. It means taxation needs to be responsible, especially on the corporate side. Charge too much in the way of corporate taxes, and revenues will go down. Charge too little, and you get more of the same. The rate should be at that which yields the most revenue (measured against the economic climate), while being fair.

On the socially liberal side, it is a belief in social policy that leads to greater equality of opportunity, without ignoring individual responsibility. It also needs to be done in the best possible way, that keeps costs down so that it is sustainable. One issue that is a good example is post secondary education. I tend to believe in the need to ensure that everyone that  gets the grades gets to go, but also think that this needs to be structured in the shape of a loan. This is so that those that go think carefully about their decisions and don’t drain the system by training to be a social worker, then a paramedic, then an accountant. Individual responsibility is important. They also recognize that some things are just necessary to the health and well being of citizens, like health care that ensures that everyone can have access regardless of ability to pay. They also believe that it does no good to expect those less fortunate (on welfare, perhaps) to find a job if we refuse to do anything, or do very little to help them gain marketable skills. Sure, they can end up off the rolls for a few months with a low wage job, but it is only a matter of time before they are back on the rolls because of job loss and having the same set of skills they had to begin with. Sometimes people need helped into a position where they can better contribute to society.

Really, how many would choose to live in poverty if they had the opportunity not to?

Balance the budget before buying the lexus

Canadian’s have fared out well following the 2008 recession. Granted, it could be better but the fundamentals are there. The economies growing, jobs are being created, and there is reason to be optimistic. Though I disagree with the often cold approach of the Conservatives, they haven’t been entirely awful at managing the situation. Based on the platform of the Liberals last election, I am not convinced we would have done better, and I think this is part of the reason why we are where we are today.

I believe that the Conservatives won by campaigning on very little, mostly a perceived commitment to deficit reduction. Any promises made by them would only come into play after the books were balanced.

On our side, Liberals rightfully criticized the Conservative record on spending and deficits but in the same breath promised new spending that was to be covered by corporate taxes at 2010 rates. We should have focused on the basics first. Committing to new spending while in deficit is like managing a household budget with $3000 income per month, while spending $4000, then committing to a $300 per month vehicle payment before asking the boss for a raise but assuming that the boss will give one that covers the new costs. Revenue increases when in deficit should be applied to the current shortfall, not to cover new vehicles that we can live without for now. Once the fiscal house is in order, then we can buy the vehicle. We must remember that the economy was (and likely still is) very fragile during the 2011 campaign. New spending on new programs at that time would not have been wise, IMHO, as it would likely have given the impression that the nation wasn’t serious about getting the fiscal house in order. This impression could have turned new business away from Canada, and we want to attract that business, not discourage it. Liberals have a good fiscal record from the Jean Chretien and Paul Martin years when we slashed an insurmountable deficit and returned Canada to surplus, and we need to hammer this home to Canadians.  Investments that further an “equality of opportunity” agenda are good, but they need to come when the fundamentals (balanced budgets, solid economic growth, etc.) are solid.