The economics of the possible and beyond

Last week, I wrote a short piece for Ricochet on the kind of simple but serious economic thinking missing from the Canadian election debate so far.  Here, I want to expand on the reasons why we might have trouble talking honestly about the barriers to significant economic reform without a real popular upsurge. If you want the short, populist argument, just read the Ricochet piece. If you want more, read on.

Here’s the main problem as articulated in the short piece:

As the gap between rich and poor has widened over the past few decades, the economic elite has grown in stature. Deficits and government spending sounds fine to them if it gets the economy going — even childcare will allow more women to go back to work and some may fill all those low-wage service jobs sitting empty because employers aren’t willing to pay more — but anything that genuinely threatens the slow upward trickle of wealth and strengthen workers too much in the workplace won’t be so happily tolerated.

This is the old tension between how much a left or centre-left economic program does to reboot economic growth and how much it also increases the expectations, capacity to organize and, ultimately, bargaining power of working people. A robust and sustained program of deficit spending, even if it is economically possible, is practically difficult in a small, open economy like Canada’s, not because our economy couldn’t benefit from it, but because businesses and money can, among other things, threaten to leave.

In other words, it is not enough to simply ask whether a program would be good “for society”. Expanding on the example above, a national childcare program can be a big help to regular, working people who have trouble otherwise affording care. At the same time, however, accessible childcare releases more women into the labour force, giving them more choice, but also providing employers with a new pool of workers. With all the crying about “labour shortages” across large chunks of the service sector (otherwise known as unwillingness to pay sufficiently high wages), this could be a boon for many industries, in particular low-wage services. In addition, if the childcare program is largely carried out through private providers, it creates a new source of government-sponsored demand for companies in the care services sector.

Depoliticizing economic questions ignores the implicit tension between the interests of growth and higher profits versus the interests of keeping a lid on the power of regular people to see their incomes and income share grow. (more…)

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Where’s the tax in BC’s carbon tax?

British Columbia’s carbon tax has been getting some high praise lately. A recent article in the Atlantic called it “the crown jewel of North American climate policy”. Such assessments need some tempering. BC’s carbon tax can tell us important things about the limits of fiscal policy today, which in turn questions the potential it has for fostering significant environmental change.

Tales of the tax’s effectiveness focus on its environmental impacts. Almost six years since its introduction, it is indisputable that the carbon tax has had some impact on resource use and emissions. This is clearly a good thing. There is debate about the extent of this impact and where it is concentrated but it’s there – see these charts.

The carbon tax is presented as not being as problematic as other “market-friendly, eco-friendly” measures such as cap-and-trade. These end up being largely corporate giveaways – new sources of commodification and profit. BC’s carbon tax has been hailed as a policy that rather than giving money back to corporations brings revenue back to the people.

Yet as opposed to those who make the carbon tax out to be an unqualified success, I think any hurrah-optimism needs to be seriously qualified. (more…)

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Ontario is no California when it comes to debt

The Toronto Star just published an article I wrote in response to claims made by the Fraser Institute and the Toronto Sun that Ontario has a runaway debt problem worse than California’s.

The short version: I call BS. The slightly longer version: California has constraints, such as limits on the size of debt and difficulties in raising new taxes, that have severely hampered its ability to take on and manage debt. It has a smaller debt than Ontario on all measures but much worse credit standing. Ontario, on the other hand, still has a lot of flexibility to deal with debt. The “solutions” proposed along the Fraser Institute’s alarmism actually seek to create similar, harmful constraints in Ontario. “There is no alternative” becomes true only if we allow alternatives to be removed.

Read the full piece here.

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