Scott

Why I am Voting for Michael Chong (And you should too)

March 27, 2017 Scott

“Elections have consequences”. It is a saying often repeated but the events of the past year have really driven it home. The leaders we collectively choice have a substantial impact on the direction of the nation and the tenor of our national and civic discourse. Had a few hundred thousand people in the American Midwest marked their ballots differently or had Republican primary voters had split in a slightly different way we would not be witnessing the unfolding disaster south of the boarder as Donald Trump vainly tries to negotiate the challenges of running a country. Who we elect matters. The people we elect will be the ones at the forefront of confronting the challenges of the 21st century.

The 21st century presents many pressing challenges we will not only have to grapple with but effectively address. The climate is warming, threating our cities, ecosystems and economy. The economic prosperity of humanity is at risk as the demographic tide sweeps the west, while anti-globalization forces threaten to undermine the global trade network that has been the most effective anti-poverty measure ever enacted. This is all happening as politics and society becomes ever more fractured. The rise of the alt right and other illiberal groups threatens to undermine our inclusive society. The increasingly troubled waters Canada and the rest of the world find itself in calls for a calm and measured approach to navigating through the storm. It is imperative that not only the Prime Minister be level headed and considered but the leaders of the opposition as well, for it is hard to steer a boat if someone is trying to rock it back and forth. Of the scores of candidates vying for party leadership only one has shown a eagerness to grapple with these issues in a thoughtful and well reasoned way; Michael Chong.

No challenge of 21st century governance is greater than the confronting anthropogenic climate change. The science is indisputable, human activity is causing rising atmospheric CO2 levels and consequently rising temperatures. The potential damage is devastating. The best time to take action was thirty years ago. But the second best time is now. Sadly of the fourteen Tory Leadership candidates 13 either ignore it, deny it or offer the most token of token gestures.  It does not have to be this way. Brian Mulroney is considered one of the greenest Prime Ministers in history. Reform Party founder and conservative elder statesman Preston Manning has repeatedly called on conservatives to conserve the environment. Fortunately there is a voice for sensible, serious climate change policy, Michael Chong. His ambitious plan calls for a $130/tonne carbon tax. Like the BC carbon tax it was modelled on, every cent goes back to the people with generous tax cuts and a low income rebate to address the potentially regressive aspects of the plan. Canadians will see lower taxes, larger GST rebates and reduce emissions at the same time. Economists love it, British Columbians love it, there is little not to like about that. And to ensure it meets its goal there will be an independent panel of experts to examine the effectiveness and makes adjustments to the price of carbon so we hit our targets. The plan is not only more ambitious than Justin Trudeau’s but it is more accountable too. I long for the day when Question Period is dominate by the Tories and NDP both holding the Liberals accountable for their lack luster $50/tonne non-revenue neutral carbon price.

In order to better hold the government of the day accountable, the institutions of our parliamentary democracy need reforming. Too often MPs act merely as an extension of the party leader. And why wouldn’t they? With a system of party discipline as strong as Canada’s the MPs are much, much more accountable to their party leader than their constituents. A Party Leader’s permission is required to be nominated for election to Parliament, to sit on committees. MPs can barely wipe their nose without first getting permission from the PMO or party leadership. And in all of this the concerns of the people who the MPs are ostensibly in Ottawa to represent get forgotten. There have been many complaints over the years about the problems with our First Past the Post voting system. I have voiced many of them myself. But it is only part of the problem. Even if the MPs were selected better it does little good if they become empty suits doing echoing whatever the PMO or party leader wants. We need significant changes to the way Parliament runs. Changes like what Michael Chong advocated for in his, sadly neuter, Reform Act, that would have empowered MPs and reduced the centralized control in Parliament. With his proposed Democratic Reforms will empower MPs and ensure Canadians are better represented in Ottawa. All Canadians deserve to have their voices heard and their view and concerns represented in the halls of power.

All Canadians haven’t always been well represented by the Conservatives. Too often conservatives have fought to preserve institutions that promulgated injustices towards minority groups. The Tories lagged too far behind on LGBT issues and recently many of the other leadership candidates have been taking a page from Donald Trump’s playbook and playing up fears over immigration. Rather than unite Canadians, the Kellie Leitchs, Steve Blaneys and Kevin O’Learys of the race have been seeking to divide and play the politics of fear of the other. As we watch that mentality take root in American and Britain it is imperative Conservatives and Canadians decisively reject that divisiveness. Nothing would send a stronger message that Trump’s style of politics is not welcome in Canada. Michael is not only the son of immigrants but has run a campaign geared towards reaching out to immigrant communities. He has repudiated and condemned the subtle and not so subtle race and religion baiting that has surfaced during the campaign. And he was the only one not to give into the hysteria surrounding the inconsequential anti-Islamophobia motion M-103. A Conservative Party run by Michael Chong would focus on the substantive issues facing Canada and not play the worst sort of right wing identity politics. I am sympathetic to a lot of Conservative positions, on defense, foreign policy and free markets. I have hated every election having to go into the voting booth and weigh supporting policies I like with potentially empowering social conservatives. Finally there is a candidate, who I can vote for without having to make that tough choice.

There is a clear choice, we can have a Conservative Party and likely next Prime Minster that ignores the threat of climate change, that lets our democracy degrade and the forces of divisiveness set in. Or we can have a Conservative Party and Leader of the Opposition that has a credible and ambitious plan to tackle climate change and parliamentary dysfunction. A Conservative Party that is inclusive and wont play to the politics of fear and division. A Conservative Party and leader with substance and principles that will fight for what they believe in the market place of ideas, not the market place of 30 second attack ads. The choice is clear, Michael Chong is the right person to lead the conservatives. This May, I will be casting my ballot for Michael Chong. And if you value climate action, effective democracy and inclusive politics, you should too.

But that can not happen if you don’t get involved and vote. The membership deadline to participate is March 28th at 2pm Pacific.

Looming Fiscal Crisis? Why the Latest Finance Report is Neither a Harbinger of Doom Nor Cause for Complacency

January 9, 2017 Scott

Last week the Toronto Sun published article with the alarming, but not out of character headline Buried government report reveals looming fiscal crisis about the Update of Long-Term Economic and Fiscal Projections report from the Department of Finance Canada, which was released just prior to Christmas. The Department of Finance’s report projects the federal budget will remain in deficit until the year 2055. In a reaction that will surprise no one, the Conservatives and right of center pundits worked themselves up into a frenzy over the news. I got fundraising emails railing against Trudeau’s reckless spending from more or less the entire slate of Conservative leadership candidates. They do have a point. When the previous conservative government left office the budget deficit was around  $5 billion and projected to be balanced in the upcoming fiscal year. And even when Trudeau promised deficits they were to be small and end by 2019. Even with the new spending the debt to GDP ratio would decline every year. Going from a 4 year deficit to a 30 year deficit is understandably a cause for concern.

 

Fortunately politics is ever the lover of hyperbole and the damage to Canada’s fiscal health falls far short of “crisis”. Projected federal debt to GDP peaks at 31.9% in 2018-2019 FY. The trend line goes in the wrong direction but does not cross into the Danger Zone. Furthermore as Yogi Berra is alleged to have said “predictions are hard, especially about the future”. The projections are based on extrapolating current spending forward and applying demographic and economic forecasts to those extrapolations. The probability of no change in government spending beyond merely adjusting to changing demand over the next 29 years is low, its very low. Even Justin Trudeau doesn’t hope he is PM in 2055.  Long run governments do keep the same policies in place year after year, they change as circumstances and the political winds change. This is the scenario where the budget is left to balance itself, as Trudeau famously quipped. In all likelihood some Prime Minister between now and 2055 will endeavor to balance the budget.

 

Chart 4 – Federal Debt to GDP Ratio

Whether those efforts will be successful is another question. A lot can happen on the time span of decades [citation needed]. There is too much uncertainty to brush off the concerns with a “don’t worry everything will be alright”.  As Chart 4 in the report shows there are a wide range of possible outcomes just from moderately adjusting the variables in the model. We could pay off the whole $636 billion federal debt or have a spiraling debt that pushes debt:GDP up by more than 20 percentage points. By far the biggest factor is labour productivity. With sufficient productivity growth the deficit gets overwhelmed by economic growth. Unfortunately Canada generally has lower productivity growth than many other developed nations. Although this has been a long running concern the current government has placed little emphasis on addressing the country’s anemic productivity growth.

As with all projections the quality is only as good as the assumptions and scope. While the demographic assumptions appear to be reasonable (any demographers out there; feel free to correct me), the fiscal assumptions are less solid. Notably the Canada Health Transfer (CHT) only growing in line with nominal GDP. As the recent circus around renegotiating the CHT attests there is constant political pressure from the provinces to increase the rate well above nominal GDP growth. A factor that will only grow more pronounced as the population ages and the strain on provincial health budgets magnifies. It is well within the range of possibilities that a future government will acquiesce to the provinces’ demands and grow the CHT well above NGDP growth. The projections also fail to account for unforeseen negative economic events. And while that is quite reasonable within the context of this document, as the economics profession has yet to develop a reliable method of predicting recessions, it never the less presents a more rosy picture than actually exists. A deep recession with a resulting large deficit could blow these projections apart and leave the country in much worse fiscal shape.

 

Perhaps the biggest limitation of the Department of Finance’s projection is the projection is of Federal not national fiscal situation. The federal debt to GDP ratio is a healthy 31.8% thanks to multi-decade and multi-partisan governing philosophy of fiscal resistant. But the federal government is not the only government with debt in Canada. The provinces have considerable debt putting the total government debt to GDP ratio at 91.5%; up from 66.5% in 2007. While there is no hard and fast rule regarding when a country’s debt load becomes too great, the rule of thumb is that ratios over 100% are cause for concern. While most of the 25 percentage point growth in debt to GDP can be laid at the feet the recession it highlights the vulnerability of the debt to recessions. With the recession over and the economy experiencing slow but positive growth now is the time to bring the deficit and debt to GDP ratio down so we have fiscal maneuvering room should another recession hit. The many provinces, including the two largest, Ontario and Quebec, have large debts and are facing increasing budgetary pressure from bearing the brunt of the demographic related rising healthcare costs. There is precious little room to absorb another economic shock without adversely impairing the fiscal health of the country. Should a provincial bail out become necessary or a future Prime Minister decide to take on more of the load from an aging population at the federal level the health federal balance sheet could rapidly deteriorate.

 

There no guarantee such a scenario does happen. I certainly hope it does not. The projection gives an overall positive outlook for the federal government’s fiscal situation.  However it would be prudent to prepare for the possible negative scenarios not outlined in the report. With an uncertain global economy and a looming demographic bomb on the horizon now is the time to strengthen our fiscal position at all levels of government. Unfortunately the short term trend lines are moving in the opposite direction. Fiscal discipline and policy of only incurring debt for productivity enhancing infrastructure investments would be an excellent first step. I will be eagerly watching the course this government lays in the 2017 Budget.

2017 Predictions

January 2, 2017 Scott

On our Year End Episode (Ep 14) Ian and I discussed what we were watching in the up coming year. Below is an expanded list of what I will be keeping an eye on and what I predict will happen.  Attached to each prediction is a confidence level, expressed in percentage terms. If my confidence is properly calibrated it should match the odds of the prediction coming true. In other words, if I make ten 60% prediction then 6 of them should happen. At the end of the 2017 I will score these to see how many I got right.

1. Star Wars Episode VIII will set a new box office record. 90%
2. Moonlight will win Best Picture 60%
3. Rouge One will win a Technical Oscar 55%
4. Jon Snow, Daenerys and Cersei Lannister will be alive at the end of the upcoming Game of Thrones season 55%
5. 2016 sucked jokes will stop being funny after Jan 20th 95%
6. At least one Trump cabinet pick will not be confirmed 70%
6. A) Contingent on #6 the reason will be close ties to Russia 80%
7. Trump’s pick to replace Justice Scalia will be confirmed 90%
8. There will not be a second SCOTUS vacancy 80%
9. Trump will have a major (defined as dominating the media for a period greater than 7 days or a drop of 5 percentage points in approval rating) scandal within 3 months of taking office 80%
10. Trump will have a scandal involving his business interests and the emoluments clause within 6 months 90%
11. There will be one serious call by the democrats for impeachment within 6 months 60%
11. A) Contingent on #11 House Republicans will vote down such measures 80%
12. Democrats will succumb to infighting rather than present a united front against Trump 60%
13. A secession movement in the pacific states will not reach or surpass 10% popular support 90%
14. There will be a major diplomatic incident in the first 3 months of the Trump administration 50%
15. There will be a major diplomatic incident in the first 6 months of the Trump administration 65%
16. There will be a major diplomatic incident in the first year of the Trump administration 80%
17. Relations between Trump and House/Senate Republicans will sour 60%
18. Relations between Trump and House/Senate Republicans will not sour to the point where the GOP congressmen vote to impeach 85%
19. Trump will not develop a serious health problem 80%
20. Mike Pence will not become the 46th President 90%
21. Trump will attempt to renegotiate NAFTA 80%
22. The US-Canada trade relationship will not significantly change 60%
23. Trudeau’s popularity will drop below that of 19 Oct 2015 70%
24. No legislation to enact electoral reform or initiate a referendum on the matter will be passed by parliament 70%
25. There will be changes to Canadian federal political finance laws 70%
26. The 2017 Federal budget will have a larger deficit than the 2016 budget projected 55%
27. Kinder Morgan gets stalled in court and no significant construction takes place 80%
28. There will be a federal cabinet shuffle 80%
28. A) Contingent on #28 Maryam Monsef will be removed from cabinet 90%
29. Nathan Cullen will become the NDP Leader 55%
30. NDP does not adopt the LEAP Manifesto 55%
31. CPC Leadership is too uncertain but rough odds are: Andrew Scheer 40%, Maxime Bernier 30%, Michael Chong 30%
32. Kevin O’Leary does not enter the CPC leadership race 60%
33. Christy Clark will win reelection 60%
34. The BC Green Party will increase its seat count 60%
35. Kathleen Wynne does not resign 60%
36. Britain does not invoke Article 50 60%
37. Angela Merkel remains Chancellor of Germany 70%
38. No other EU country will announce plans to leave 70%
39. Far Right/Alt Right does better than expected in at least on European election 60%
40. China does not have political turmoil on par with or surpassing Tiananmen Square 90%
41. North Korea’s regime will remain in place. 90%
42. Assad remains President of Syria 95%
43. ISIS remains a functioning organization 85%
44. ISIS losses territory 80%
45. There will be no terror attack with >100 casualties in the USA 95%
46. There will be no terror attack with >100 casualties in Canada 95%
47. There will be no terror attack with >100 casualties in EU 80%
48. No major intifada in Israel this year ( >250 Israeli deaths) 80%
49. No major Israeli military operation against its neighbors (>500 casualties) 80%
50. US will not get involved in any new major war with death toll of > 100 US soldiers 55%
51. No major war (>100 military casualties) in Asia 90%
52. Canadian Forces does not deploy a battle group size force to a new theatre 55%
53. Canadian Forces deploys a force smaller than a battle group to a new theatre 60%
54. There will be a cyber-attack attributed (but not confirmed) to a state actor on a NATO country 70%
55. Global extreme poverty will decrease 90%
56. Average global life expectancy will increase 90%
57. Vancouver Housing prices will drop 60%
58. House Prices will not drop >20% 70%
59. Broadway subway to UBC will receive funding 55%
60. Vancouver implements congestion pricing 55%
61. There will be no major changes to Vancouver land use policy 90%
62. Massey Tunnel replacement will face at least one delay 65%
63. Queen Elizabeth will pass away 55%
64. A Republican movement does not gain traction in Canada 90%
65. The Alt Right does not gain a foothold in Canada, defined as an affiliated party gaining a seat or a candidate winning a leadership race in an established party at any level 90%
66. S&P 500 will close lower at the end of 2017 than 2016 (2,238.83) 55%
67. Oil will closer higher at the end of 2017 than 2016 (WTI Crude $53.72) 70%
68. US Federal Reserve will raise interest rates 70%
69. Bank of Canada will raise interest rate 60%
70. Canadian GDP will grow less than 2.1% 55%
71. Canada’s per capita carbon emissions will fall 80%
72. America’s per capita carbon emissions will fall 60%
73. Alberta’s per capita carbon emissions will fall 60%
74. Tesla will announce a delay for the model 3 60%
75. SpaceX will successfully relaunch a previously used rocket 70%
76. SpaceX will launch, recover and re-launch a rocket within two weeks 50%
77. The US announces a major new manned space initiative 50%
78. Controversy over the EM drive is resolved 50%
79. The US will install more renewable electricity generating capacity than non-renewable 80%
80. Canada has at least one record setting extreme weather event 80%
81. BC has at least one record setting extreme weather event 50%
82. A weather related natural disaster in Canada causes at least $1B in damage 50%
83. The Cascadia subduction zone does not have an Earthquake of 9.0 or greater 98%
84. Canucks win the Stanley Cup. A wildly optimistic 90%

Feel free to post yours in the comments.

Michael Chong’s Campaign Stop in Vancouver

November 6, 2016 Scott
chongmichael_cpc

CPC Leadership Candidate Michael Chong

This past Friday I attended a meet and greet for Conservative Party leadership candidate Michael Chong, hosted by the Vancouver-Centre EDA.

As listeners to the podcast know Michael Chong has piqued my interest by breaking with some of the more orthodox big “C” Conservative positions on climate change, carbon pricing and advocacy for major democratic reforms in how Parliament functions.

I recorded the speech and following Q&A segment. Apologies  for the poor sound quality. The event was held in a loud bar with bad acoustics and I recorded on my phone.

I asked Michael Chong the question I had brought up in episode 6 on the short term fiscal impact of his carbon tax plan. His plan calls for $18 billion in tax cuts to offset the new carbon tax. The tax cuts take effect in 2020 but the carbon tax gets phased in over 10 years. I wanted to know how he reconciled that with his pledge to keep a balanced budget. Unfortunately the audio is unusable from when I spoke with him after the Q&A had finished. He answered that yes there would be some short term fiscal stress but it was both manageable and there would be a stimulus effect from such a massive tax cut. Their internal models show up to $7 billion in additional federal revenue from such a stimulus but this was left out of the policy paper in order to be conservative about the fiscal situation.

Please give these a listen, there were a lot of interesting questions asked from his stance on LGBTQ issues, to ISIS to free movement between Australia, New Zealand and Canada.

Don’t (Carbon) Tax Me Bro!

October 12, 2016 Scott

In the six days since Episode 2 of PolitiCoast: Green Shift 2.0 Shift Harder was released the feedback we received on Facebook can at best be described as “mixed”.  It turns out Carbon Taxes are controversial. Who would have thought?

The responses can be broken down into four general but over lapping categories.  First climate change doesn’t exist. Second carbon taxes do not work. Third carbon pricing raises the cost of living and hurts families. Finally there is a moral responsibility for corporations not people to pay for the damage of climate change. I am not going to devote much space to the first point because if decades of scientific research and an overwhelming consensus among scientists isn’t enough to convince you of reality of climate change some guy with a politics blog certainly isn’t going to.  The remainder of the responses are worth examining.

The claim that carbon taxes are ineffective was a common critique. If true it would certainly be a solid reason to oppose Trudeau’s plan. However this claim does not stand up to scrutiny on either theoretical or empirical grounds. The economic theory underpinning carbon taxes is pretty simple. It is based on two premises; prices convey information and people respond to incentives. Currently in jurisdictions without carbon prices there is no effective way to convey to people making economic decisions the costs, in terms of environmental damage, of their carbon emissions. A carbon price conveys that information by placing an approximated dollar amount on the damage a tonne of carbon causes to the environment. With that knowledge being transmitted to people via prices they can then assess if the benefits they gain from emitting that carbon are worth the damage inflicted. Perhaps most importantly that evaluation of the tradeoffs cannot be avoided. Because people generally respond to incentives and tend to opt for the lower priced goods or services, people will generally opt for lower carbon emitting options due to the lower relative price. The least marginally beneficial uses of carbon will decrease as the economic calculus no longer makes sense. This will result in reduced carbon emissions. There are well established market mechanisms by which carbon taxes work. Mechanisms, which those on the right ought to accept but often don’t. But that is a topic for a follow up post.

As for the empirical question, it was frequently claimed in our comments section that British Columbia’s carbon emissions had increased since the carbon tax was introduced in 2008.  The data published by the Government of British Columbia shows a decreases of total emissions from 66.8MT to 64.5MT as well as per capita and per dollar of GDP.  Unlike other provinces which have seen a decrease from phasing out coal electricity the composition of the BC electrical grid (predominantly hydroelectric) has remained largely unchanged.

Another frequently raised concern was carbon taxes would raise the cost of living. And that this would be especially hard on the poor and to a lesser extent the middle class. This has been the federal Conservative’s favourite line of attack. While these are reasonable concerns they are neither unaddressable nor sufficiently serious to out weigh the benefits of carbon pricing. The increase cost of many everyday goods and services can be addressed by following the BC model of a revenue neutral carbon tax. Under the BC model the revenue generated by the carbon tax is used to cut other taxes. The net tax burden remains the same however the tax burden is concentrated on those areas of the economy with the highest carbon output. For a family with a low carbon foot print they can come out ahead because their income taxes have been reduced. And for the poor, who have little disposable income and are hardest hit by increases in the cost of living a rebate can be issued to offset the new costs. Perhaps most importantly this increase may be temporary as businesses are incentivized to develop less carbon intensive (and therefore cheaper) ways to provide goods and services. In a competitive market those savings are passed onto the consumer.

The final point raised was that morally the burden of paying for the cost of climate change should fall on corporations, who have profited from carbon emissions rather than on people. However this misses a couple of key points. These business only exist because there is demand from the average citizen for their goods. If people didn’t want oil and products for which oil is a feedstock there would be no Exxon, no Suncor and no BP.  There would be no money to be made because no one would buy their product. Ultimately the huge corporate structure that exists is there to meet the demands people have for goods and services. It is meeting those demands which have resulted in the environmental damage we are trying to address. People should bare the costs associated with their consumption behavior. Without having to bare those costs people will lack the incentive to adjust their consumption.

Furthermore there is the implicit assumption in this argument that an economic agent (in this case a corporation) merely will bare a cost imposed on it without changing behavior or passing that cost onto other parties. Focusing solely on corporations will merely result in them passing the increased cost of doing business onto their customers. It is the same as a tax on consumers, just one that is better hidden.

Carbon taxes are undoubtedly going to be a controversial topic in the coming months and years. It is important for such a critical issue as dealing with climate change that the best arguments are presented and there is no misunderstanding about the benefits and costs of carbon pricing.