Category: Economics

Matters of money

Open thread: 2015 federal election

Stephen Harper’s Conservatives won their first minority in Canada’s 39th general election in 2006, defeating the Liberals under Paul Martin with 124 seats to 103.

In 2008, the Conservatives did better against the Liberals under Stéphane Dion, ending up with 143 and 77 seats respectively.

In 2011, the Conservatives won a majority government with 166 seats. The Liberals under Michael Ignatieff fell to 34 seats and the NDP became the official opposition under Jack Layton.

On October 19th, we will have our 42nd general election. Polls suggest the NDP is most likely to win, but a lot can still change and may outcomes seem possible.

In the long run, I think Canada would be best off if the Liberals and NDP merged into a Liberal-Democratic Party that will be consistently capable of competing with a united right-wing. I respect the fear some people have that a system dominated by two parties will lead to US-style politics. At the same time, Canada’s parliamentary system with executive-legislative fusion has quite distinct characteristics from the US presidential/congressional split.

When it comes to climate politics, we can’t have policies that get reversed with every change of government. Libertarians and conservatives need to acknowledge what we are doing to the planet and endorse effective policies for responding to it. Continued delay will only increase the eventual need for government intervention.

Sweden

As a long-time student of politics, I often find myself wondering if Sweden simply has public policy basically figured out and everyone else is just screwing it up or governed by self-interested elites.

Would nearly all countries be better off imprisoning their politicians and high-level civil servants, bringing in some Swedish politicians and bureaucrats, and then having the newcomers exact sensible public policies across the board?

After finishing my PhD at U of T, the idea of moving to Sweden for at least 2-3 years has a lot of appeal at the moment.

Joe Oliver sit-in

Today there was a student sit-in at the constituency office of MP and Minister of Finance Joe Oliver. The students were calling for an end to Canada’s ineffective and harmful climate change and energy policies.

Six other sit-ins took place, attempting to meet with other MPs across Canada.

On Sunday, the major March for Jobs, Justice, and the Climate will be happening in Toronto: moving from Queen’s Park to Allan Gardens.

Collier on plunder and romanticism

Plunder and romanticism are so rife precisely because ordinary citizens are insufficiently informed about the opportunities and threats that nature poses to have forced governments into effective regulation. In the task of building an informed citizenry the starting point is an ethics of nature that people in societies with widely different value systems can understand and accept. Neither the romantic variant of environmentalism that sees nature as an end in itself, nor the austere universalism of economic Utilitarianism, can provide such a foundation. The most difficult wars to win are those that must be fought on two fronts. It is more straightforward, psychologically more satisfying and dramatic to have only a single enemy. The romantics among environmentalists and the Utilitarian Platonic Guardians among economists see nature as a single-front war. The romantics regard economic growth as the enemy; the Platonic Guardians regard the values of ordinary citizens as the enemy. But most struggles in development are not like that: sanity lies in the middle rather than at the extremes. Aid provides an example. It is neither a panacea nor a menace.

Collier, Paul. The Plundered Planet: Why We Must – and How We Can – Manage Nature for Global Prosperity. 2010. p. 12 (paperback)

Preliminary response to Canada’s Indian Residential Schools Truth and Reconciliation Commission

Canada was founded upon a grave injustice: the appalling mistreatment of North American indigenous populations by European settlers, including countless acts of physical and cultural violence.

Days ago, the The Truth and Reconciliation Commission of Canada released their final report. One part, on page 20 of the summary, seems especially important:

Together, Canadians must do more than just talk about reconciliation; we must learn how to practise reconciliation in our everyday lives — within ourselves and our families, and in our communities, governments, places of worship, schools, and workplaces.

The argument that we bear no moral responsibility for the choices of our ancestors, and that we have no responsibility for systemic patterns of oppression that still exist, is logically and ethically weak. Similarly, the argument that colonization happened so long ago that no recourse is possible or necessary today ultimately perpetuates structures of injustice.

Conversely, the idea that we can to some extent make a sincere and meaningful effort to atone for past and present failings has great appeal. Having dispossessed sophisticated societies of almost all their land and spent decades treating aboriginal people with either cynical viscousness or inhuman contempt, it’s shocking and wrong that a rich state like Canada tolerates the conditions under which too many indigenous people live. There’s no non-aboriginal Canadian community where the question of whether they get drinkable water depends on whether the municipal, provincial, or territorial government is fond of the local mayor, but many aboriginal communities today function under conditions that would spur immediate attention and action for non-aboriginals.

As the first step toward reconciliation, this has to end. Scholars like Taiaiake Alfred are right to question the basic legal and moral validity of the Canadian state, built as it was upon imperialism and conquest. As Alfred explains in Peace, Power, Righteousness: An Indigenous Manifesto (2008):

All land claims in Canada, including those at issue in the BC treaty process, arise from the mistaken premise that Canada owns the land it is situated on. In fact, where indigenous people have not surrendered ownership, legal title to “Crown” land does not exist — it is a fiction of Canadian (colonial) law. To assert the validity of Crown title to land that the indigenous population has not surrendered by treaty is to accept the racist assumptions of earlier centuries.

Canada’s aboriginal peoples would probably be justified in pointing to centuries of mistreatment and treaty violations as just cause for settlers to be expelled. But, based on my limited knowledge and experience, that’s not what anyone is asking for. Most indigenous Canadians who I have met want the spirit of the treaties honoured: to share the land, and to live in peace and friendship.

I am acutely aware of how unqualified I am to discuss these matters. In my defence, I am working to develop a base of knowledge for my academic work. In addition to Peter Russell’s Recognizing Aboriginal Title: The Mabo Case and Indigenous Resistance to English-Settler Colonialism, I am currently reading Dwight Newman’s The Duty to Consult: New Relationships with Aboriginal Peoples and the Kino-nda-niimi Collective’s impressive and inspiring volume The Winter We Danced: Voices from the Past, the Future, and the Idle No More Movement.

The G7 on getting beyond fossil fuels

Regardless of whether you think the commitment is credible, a position on climate change adopted by the G7 bears consideration:

“At yesterday’s summit in Bavaria, the G7 leading industrial nations agreed to phase out fossil fuels by the end of the century.”

For one thing, it’s questionable when politicians set goals so far off in the future. For another, we need to phase out fossil fuels much more rapidly if we’re to avoid catastrophic climate change. Nonetheless, there’s one important message here: fossil fuels have no long-term future, and that is increasingly being recognized by the world’s most powerful governments.

Hopefully, this will help people come to grips with the implications of the carbon bubble, and make people think more critically about the appropriateness of building long-lived new fossil fuel infrastructure like pipelines.

Lack of justification for high executive pay

The most convincing proof of the failure of corporate governance and of the absence of a rational productivity justification for extremely high executive pay is that when we collect data about individual firms (which we can do for publicly owned corporations in all the rich countries), it is very difficult to explain the observed variations in terms of firm performance. If we look at various performance indicators, such as sales growth, profits, and so on, we can break down the observed variance as a sum of other variances: variance due to causes external to the firm (such as the general state of the economy, raw material price shocks, variations in the exchange rate, average performance of other firms in the same sector, etc.) plus other “nonexternal” variances. Only the latter can be significantly affected by the decisions of the firm’s managers. If executive pay were determined by marginal productivity, one would expect its variance to have little to do with external variances and to depend solely or primarily on nonexternal variances. In fact, we observe just the opposite: it is when sales and profits increase for external reasons that executive pay rises most rapidly. This is particularly clear in the case of US corporations: Bertrand and Mullainhatan refer to this phenomenon as “pay for luck.”

Piketty, Thomas (Translated by Arthur Goldhammer). Capital in the Twenty-First Century. 2014. p. 334-5 (hardcover)

Piketty on “the illusion of marginal productivity”

Let me now return to the explosion of wage inequality in the United States (and to a lesser extent Britain and Canada) after 1970. As noted, the theory of marginal productivity and of the race between technology and education is not very convincing: the explosion of compensation has been highly concentrated in the top centile (or even the top thousandth) of the wage distribution and has affected some countries while sparing others (Japan and continental Europe are thus far much less affected than the United States), even though one would expect technological change to have altered the whole top end of the skill distribution in a more continuous way and to have worked its effects in all countries at a similar level of development. The fact that income inequality in the United States in 2000–2010 attained a level higher than that observed in the poor and emerging countries at various times in the past — for example, higher than in India or South Africa in 1920–1930, 1960–1970, and 2000–2010 — also casts doubt on any explanation based solely on objective inequalities of productivity. Is it really the case that inequality of individual skills and productivities is greater in the United States today than in the half-illiterate India of the recent past (or even today) or in apartheid (or postapartheid) South Africa? If that were the case, it would be bad news for US educational institutions, which surely need to be improved and made more accessible but probably do not deserve such extravagant blame.

Piketty, Thomas (Translated by Arthur Goldhammer). Capital in the Twenty-First Century. 2014. p. 330 (hardcover)