Living with Covid: What does it mean?

Over the last year or so I've heard a lot of people talk about "living with Covid." I will confess that I was not entirely certain what they meant because they themselves were often not clear. In the case of Republicans in the United States (or, at least the Trumpist wing of the Republican Party), living with Covid seemed to mean doing nothing in terms of public health while an unusually large number of people died who -- and this is the sad truth -- did not actually need to die. 

I've met a number of people in my neck of the woods who basically meant the same thing. When they talked about living with Covid, they tended to mean that public health measures should be as limited as possible and restrictions should be as limited as possible. For me, this is a particularly poor way of thinking about what it means to live with Covid. After all, if we flipped the question around and asked about what it might mean to, say, live with Polio or the Plague or Ebola on similar terms, most people would view that as a really bad public health policy. After all, we do have to live with Polio, the Plague, and Ebola, but no one counsels doing nothing about them. We have to live with crime, but does that mean that we will take no actions to limit or control or punish criminals? 

On the other hand, the extreme response on the other end -- lock us down -- is likely unproductive for a range of reasons. These include: no government is going to do it. It is not a viable long-term strategy for the kind of interconnected world in which we live (for example, it assumes a security of supply chains and I am not certain I would make that assumption). I have not seen the data on mental health and I am worry that these two words have become some sort of catch all discourse mobilized in any situation to justify just about any particular policy recommendations someone is making but it is an important consideration. Indeed, I'd argue that it is so important that we should be making specific provisions for it, rather than assuming that "going back to normal" will resolve mental health problems in and of itself. 

So, what does -- or, should -- "living with Covid" mean? I think it should mean several things. Most importantly: I think it should mean that we will need to redefine "normal" and to understand the stresses, strains, and opportunities that it provides. What might this look like? For purposes of discussion, I think it could involve a number of things. A non-exhaustive list might look something like this: 

• Maintaining stricter limits on the number of people who can be in a store or restaurant or gym, etc. 
• Maintaining contact information for patrons 
• Keeping sanitizer at entrance ways and requiring its use upon entry
• Maintain directionality in grocery stores and potentially other venues like restaurants and pubs, where this is possible.  Planning for directionality can be added to considerations in new construction (much in the saw that access requirements were in the past). 
• Vaccination education is a long story, I know, but it should be maintained and there may be a need to restrict access to some venues to the vaccinated. I personally believe that vaccination can also become a requirement for immigration and travel to Canada. I recognize that there are problems with this that will need to be addressed. For instance, not everyone has the same access to vaccines. In the shorter term this will need to be taken into account, but we can maintain the longer run objective as an aspirational ideal. 
• It might also be useful to restrict hours. In my town, for instance, hours for the liquor store and for shopping were more limited at the height of pandemic concerns last year. 
• I personally like senior hours for grocery shopping. One of the stores in my town, for instance, opened early a couple of mornings each week to provide space for seniors to shop (they should shop at other times, but two hours each week were reserved for seniors alone). 
• Masking in public areas may need to be maintained. 
• Public provision of N95 masks (or, whatever the kind of mask that is needed).
• Public provision of rapid tests.
• Ensuring a robust public health care system that can both respond to flare ups and conduct its regular work. 
• Providing a globally equitable access to vaccinations and public health measures. 

I'll venture more slowly into a consideration of education because, the truth of the matter is that I don't know a great deal about public education and how it operates. I'm reticent to start suggesting things to teacher and parents who have a much higher level of first hand knowledge than I. However, I do think there are consideration for higher education that can help and I'll address those in a future post. 

My list above is not exhaustive and there is, of course, room for discussion but you can see what I am trying to suggest. The current discourse is to impose restrictions in response to public health problems when those problems reach a certain level. They are often imposed "with regret" and with the proviso that this will be for as short a time as possible. I find this approach reactive. What we need to do is to think about a pro-active response.  We may not be able to eliminate Covid (I might debate that but let's assume it for now), but that doesn't mean that we can't take steps to provide for as high a level of safety and security as possible. 

There are a couple of questions that my proposals need to answer. I have mentioned in the past that the burden of proof rests on those making proposals. I often hear, for instance, people say "we have to do something." This could be true but what we need to figure out is whether the specific course of action is both useful and viable. The key questions that need to be addressed are:

1. Will these kinds of permanent changes create more harm than good? Are they not undo restrictions that can be accepted in emergency situations but which, under other conditions, become an unwarranted and perhaps unconstitutional intrusion on individual rights (among other things)? 
2. Will these changes actually do any good? 

Let me take the second question first and leave off the first for another day. The short answer is that no one knows the future. We can't provide guarantees on just about anything, but we can make reasonable projections. For instance, ensuring that seniors have a dedicated grocery shopping time does not mean that seniors will not catch Covid (or, something else). But, it can lower the chances and it can proactively address mental health issues with regard to seniors, many of whom are deeply concerned about -- indeed terrified of -- Covid. It seems to me that the great merit of (to use just this one example) of special seniors shopping times is that they can address both the health concerns (providing better protection for a vulnerable population) and mental health concerns (alleviating some measure of fear with regard to being out in public). It is a proactive statement that shows "hey, we are thinking about this issue." And, it quite literally harms no one.  The most I can figure is that there might be a small staffing cost increase for some groceries stores. Moreover, in larger centres, different stores could take turns so that whatever minor costs there might be can be spread around. 

This is just an example. I use it to show how living with Covid should not mean going back to 2019. But, instead, developing a proactive strategy that looks at how we can actually live with Covid. This involves changes to how we do things as as society but we need not resist those changes. They can help address mental health issues and can provide services that ensure a higher level of protection for vulnerable populations. 

Now, I recognize that that one was easy. Other provisions I have suggested will likely be greeted with a higher level of skepticism. There are costs to providing M95 masks and rapid tests. Some may have concerns about limiting capacity in spas and gyms and classrooms. In my next post I will try to address those or at least lay out a way of thinking about these issues. 

Carbon Taxes and Fairness

New Brunswick now has a carbon tax. Noting our current government's support for carbon-based energy (although this appears to be waning), one might ask: why? A lot of people are not particularly happy with it and view it as a "government imposition." Well ... of course it is. Aren't all taxes government impositions? Aren't all laws? Is not that law against murder (which I support!) a government imposition? Is not that law against child abuse and that one against human trafficking, a government imposition? The carbon tax is a law and for those who are going to call it a government imposition, where do you think the rest of our laws come from? Using language like "government imposition" taps into a deep (and, I think, growing) subculture of distrust in government and, indeed, rejection of the idea that the government (through the state) should do things to improve society and promote fairness.  Hence, things like the Ontario government's (as an example) ditching free prescriptions for youth, original plan to cut funding for treatment for autistic children, cuts to French-language services, etc. If it comes from government, so this theory goes, it must be bad and we need to get rid of it.

I don't want to defend government in all things. My own view is that policies should be assessed in context and on a case-by-case basis. One should not, in other words, make up one's mind in advance that a policy is good or bad based on some preconceived notion (which could change next week -- don't believe me ... watch Fox News in the US waffle with regard to the powers of the presidency when the person in that office changes) of the state. Instead, one should assess the merits of policies, their reasonable chances of success, processes of implementation, etc., as part of a process of determining whether or not a policy should be implemented. Making up one's mind in advance is not, in my view, a "critical perspective" but its absence. It is taking one's cue from ideology as opposed to actually thinking and I tend to be in favour of thinking. So ... with that in mind, what do we think about a carbon tax?

The people that I was chatting with get a carbon tax wrong. Let's begin with some basics: a carbon tax will not, by itself, address (or "solve") the environmental problem. No one ever said it would. A carbon tax is one piece of what should be a series of policies designed to address environmental change and degradation. If one wants to argue that the federal government of Canada has messed up the implementation of a policy or mis-explained it ... get in line. There is a long line of policies that have been messed up or which are, in my opinion, pretty bad. But, don't let that distract from the way in which you think about a carbon tax and its purpose. If you believe that it will, by itself, solve all environmental problems, well, that means: (a) you must think that anyone who opposes a carbon tax is a rotten human being for standing in the way of the one policy that will save the planet, or (b) you are setting up the carbon tax to fail, as it were, by creating a completely unreasonable goal for it. Either way, I disagree with you.

What is more, this line of argument serves to mystify what the tax system does and why we have taxes. Like the whole idea of a federal "imposition," it detracts from clear and democratic debate on the merits of different policies in the name a quick one-liner that makes its speaker feel good but does not get us where we need to be at in order to assess the policy.

So, if a carbon tax is not, by itself, the solution to environmental problems, what does it do? The key thing it does is try to put a price on pollution. The basic argument is this: when you drive, you create pollution but you don't actually have to pay for the cleanup of the pollution that you make. We have been doing this for so long that we don't even recognize this. We get in our car (or, on a plane, etc.) and get going without thinking "what happens to the exhaust?" I seems to just disappear.

The problem, of course, is that it doesn't. It goes into the environment, creates climate change, and that creates expenses. In other words, when we drive our cars or heat our homes, etc., we make a mess that needs to be cleaned up.  That clean up costs something.  What is the cost? Well, all kind of things. In my town, we have a big water diversion project because of flooding caused by climate change. We have to rebuild dikes and fix roads that we did not have to fix in the past or clean up flooded towns.  Those are just the most evident costs; there are a bunch more. Who pays for this? Well, right now ... no one. We put off paying for it by asking the environment to absorb the cost and the environment has said "I can't do this any more." I myself don't actually think the environment speaks.  That is a metaphor but that is what, in effect, climate change is. It is the environment saying "I am so full of pollution that I cannot process it all and keep the planet in equilibrium and things are now going to start to go out of whack."

A carbon tax is an effort to ensure that the people who make the mess actually pay for fixing the problem. Yes, indeed, previous generations who contributed to the mess will not pay but we can't make dead people pay so that is a rather spurious point. What the carbon tax here in NB is doing is asking me (Andrew Nurse) to pay for the mess I am making as opposed to pushing it off, say, on my kids and asking them to pick up the tab (by paying for clean up later).

One of the basic principles of economics is that there is a cost to everything. People get confused up because they associate costs with money and this is a fair enough confusion because most of the time they are right. We do indeed measure our costs in cash. But, a cost need not be in cash, as everyone knows. Imagine you are waiting for a friend who is late. What is the price of waiting for that friend? Time. Imagine you are reading this blog. What is the cost of reading this blog (you get it for free)? Well, it is the other thing you could have been doing with your time (playing mahjong online, say, or reading a good book). What we have done with pollution, as I explained above, is to pollute but to ask someone else (or, something else) to pay the cost of our pollution.

Now, if you think about this for a minute, you will see that this makes a certain sense. We cannot just do whatever we want with, say, the local high school soccer field. If I were to take my garbage up to the field and dump it (heck, let's include all those nasty things you have in your shed, half full cans of paint, etc.) on the field, what would happen? If I did, I would be (a) fined and (b) required to pay for the clean up.  The fine affixes a cost to my violation of the law; the clean up is only fair. It is not a punishment. I am being required to fix the problem I created.

One can agree or disagree with this view. You might, for instance, think, gee, why can't I just dump my trash anywhere? Why can't I leave garbage bags on the soccer field or drop off my paint products in front of the elementary school? And, I will come back to this point in future blog, because there are folks who actually kind of think this way. But, for those who don't, you see the point. There is actually nothing particularly unusual about asking people to pay for cleaning up the mess they make. The problem when it comes to the environment is that people:

1. Don't see the mess and so assume it is not there
2. Have been doing it so long they think it is their right to leave a mess for future generations
3. Believe there is some magic solution that will, ultimately, solve all problems
4. Have not paused to think about who is actually paying the cost for the mess they are making and who will have to pay to clean it up

This is one of those situations where people are more than happy thinking they are "getting something for nothing." They made a mess and ... well ... unlike dumping garbage on the local high school field, no one has come and made them clean it up and so they assume they can just keep making the mess. 

This is a blog and we can't go through each of the points above. Clearly, if you think there is no such thing as climate change ... well ... I don't have a lot to say. We are speaking a different language and there is no use in talking about the issue and we need to find some other subject if we want to have a meaningful dialogue. 

The key point I am trying to make is directed toward other perspectives. It is directed toward those who might not have thought about the environment or about the costs and the cleanup bill and fairness. One can disagree with a policy; one can develop better and more effective policies but the idea that those who helped make the mess should actually clean it up is not radical.  In fact, it is painfully ordinary and normal and a point that, I hazard a guess, most of us take for granted. 

A Refresher on Markets and Costs

In a capitalist society, people make mistakes about markets. I've blogged on this before. They attribute all sorts of erroneous things to markets: moral purpose, ethics, innovation, savings, the promotion of equality, the maintenance of democracy, etc. Some of this is not surprising. After all, if you live in a capitalist society, you tend to think that capitalism -- the use of markets -- is a good in and of itself that must be related to other goods. The problem is ... that these connections are problematic and tenuous. Markets do certain things. They have their uses and, even when they don't, there may be good reasons to not overly interfere with them because a high level of interference may hamper democracy. But, if we are going to effectively assess public policy -- the choices that we have before us as a society -- it is likely a good thing  for us to know what markets are all about and what they can and cannot do.

First, there is no necessary connection between markets and innovation.  Market theorists make this connection because they assume that everyone is motivated by a desire for cash. They call this self-interest as in we all want to be rich. This is actually problematic in terms of its veracity (but this is a discussion for another day).  This issue, like so many other issues related to markets, is an empirical question and not a theoretical question. Why? Because if we leave it a theoretical question ... what happens when we change theory? We get a different answer. If it is an empirical question, we at least have a chance of having a consistent answer. So ... do markets innovate?  The short answer is: not necessarily. There are been great innovations in human history without free markets (read over William Fogel's _Without Consent or Contract_). There have been amazing scientific discoveries (think Galileo) advances in mathematics and medicine, biology, genetics, amazing works of art were made and poems written. Today, perhaps the most innovative sector of the economy comes from the open source movements in software. Some people make money from this but others -- likely tens of thousands of others -- don't. Market economics can be innovative but so have been other economic systems and sectors of society that are de-commoditized.

Second, markets are efficient, as I have mentioned before, only if you use a specific definition of efficiency. For market economics, efficiency is getting a good to a person who is willing and able to pay for that good at the given price. It does not necessarily mean that more people get that good. To say this again, efficiency is allocation on the basis of desire and ability to pay. If I cannot pay for the good and don't get it ... that is actually a market efficiency. Sounds odd, I know, that impeding access to a good could be considered efficient but if you use the definition of efficiency used in capitalist economics, it is at least consistent.

An example a friend of mine used to explain this to me was downloading music for free (aka, pirating music). My friend argued that economists should, in fact, be happy with this because pirating music (aka, not paying for it), allowed people to make up their minds on the music to which they wanted to listen on the basis of the music (as opposed to having a cost intrude). He -- my friend -- did not expect free downloading to hurt innovation in music at all since, he believed, musicians would keep making music because that was what they did. Whether or not they were paid a lot for it, he said, would not affect the supply of new music since people will always make music. Hence, he was saying, the argument that we need to pay for music because otherwise people will not make it, was bogus.

What you can see in this example is that the argument for paying for music, then, has little to do with maximizing the distribution of music. Instead, it has to do with ensuring that those who can pay for music (a good) and like the music can get it. Thus, ability to pay is a key element of a market.

But, surely, at this point, someone says, markets lower the price of goods, increasing access to them. This is a key misunderstanding. Markets can work in this way, but there are limits. An example that is often used is one where there is no specific good in question. It goes like this: Company X produces good 1 and sells it for $1.00 per good, making a lot of money. The good is popular and there is, in fact, excess demand. Other companies notice X making money by selling good 1 and so they are drawn to the market and, because they are self-interested (aka greedy), they make the same good and lower their price in order to capture some of the market.  Company Z sells the good for $0.90 in order to undersell Company X. This forces company X to lower its price to $0.90. Thus everyone benefits. Because company X and Z are now making good 1, more of the good is make and the price is lower.

And, this can happen. But, not always. There are some instances where it might be good to *not* have new companies entering a market.  A key example might be industries that have something to do with national security. This could be weapons or anti-hacking software. Said differently, there may be security reasons to limit market access. This might not just involve the military. We might not care very much if there is a serious competition over companies looking to make toys for McHappy meals (although we want these to be safe), but companies that make airplanes or that run airports or make medicine are other matters.

In addition, there may be markets where the entrance costs are really high. Medicine is a key example of this. If you need the latest MRI or CT machine in your hospital ... well ... those are big start up costs. Running an airline (as we have seen in Canada) is another example. How many airlines have, in fact, failed in Canada (in one way or the other) over the last 20 years? Likewise, to continue this example, there can be markets where one product is connected to another and that connection cannot be broken. Think about the airports I mentioned earlier. Not only do these need to be heavily regulated for security reasons (meaning that you can't just open one up without some sort of government involvement), not only are there serious start up costs (how many of us have the money to just start an airport?), but the success of my airport depends on whether or not airlines use it and airlines will only use it if I have approval from government to run and airport, if it is safe, etc. In other words, I can't just open the Sackville International Airport and wait  for Air Canada to knock at the door.

I should note that I am not criticizing this. I am explaining the way things are. In general, I don't disagree with the restrictions on airports or the need for proper security matters. The point is to note the way in which there can be markets with very limited access owing to security, necessary connections to other products, the need for safety, and very high entrance costs (some things are simply expensive to build). What this means is that competitive markets become very limited or non-existent in some areas ...

... and health care, btw, is one of those areas.  There are all sorts of limits to market access in health care from the need to recruit highly qualified people, to building costs, to the costs of equipment, to the need for state oversight, to policing (we don't want people just strolling in and taking drugs and selling them on the street).

Third, markets are not about morality but are, in fact, a-moral. They do what they do without recourse to morality.  Sometimes, this means that markets will supply consumers despite the morality of those markets. Examples: dangerous and addictive drugs and child pornography.

In other instances, they do not lower prices or increase access (remember, again, they can but this is not an "always" situation). Can I give you an example? Yes, university tuition is the example I usually use. Imagine a university that has 100 students and charges $100.00 in tuition. It has a total revenue of $10 000. Imagine, further, that various costs (faculty, books for the library, grounds keeping, etc.) cost $9000.00. Our hypothetical university makes a profit of $1000.00 and it is happy. But, it can make more, It discovers that there are some people who really want a university degree and are willing to pay a lot for it (there could be all sorts of reasons for this, such as labour market integration).  It discovers that these people will pay not $100 in tuition, but $200.00.  The university now needs fewer students to make the same amount of money. Instead of having 100, students, it now needs to recruit only 50 students for make the same $10 000.00 in revenue. Moreover, because it only has half the number of students, a whole bunch of other costs can be lowered.  Our fictional university -- run on a market basis -- needs fewer recruiters, less books in the library, fewer dorm rooms, fewer faculty. In other words, it can cut its costs. Because these costs were realized on an economy of scale (see my post on 31 July about this concept), saving are not 1:1 but let's assume 25%. So instead of $9000.00, costs are $6750.00. Profits surge from $1000.00 to $3250.00.

All this was realized by actually reducing access and increasing costs. It is an example so before some says "you didn't calculate the cost of paper" or something like that, I know. The example is intended to illustrate a point and one that others have discovered already (this is Apple's model: they do not compete for what they view as "low end" markets). Fewer customers spending more can allow a company to realize a higher profit without any new investment. Our university could go the other way. It could try to increase student numbers to realize a profit but that would involve hiring more recruiters and faculty and building new dorm space, and the like. In other words, it needs to start competing in other markets that might have their own barriers to entry (you can only build new dorms, for instance, if you have land; if you don't, you need to buy it and if it is not available ... ).

Again, my goal here is not to say "here is everything that is wrong with markets" but to talk realistically about what markets can and cannot do.  They may promote innovation but innovation will occur regardless of markets and occurs for reasons other than the profit motive. Market economics promote efficiency but use a specific definition of efficiency that is different from common sense. These are confused at one's peril. Markets are not inherently connected to morality. Markets can facilitate immorality (in the case of child porn) or can focus on making money, which does not necessarily work to solve other problems. Where money can be made by lowering access and increasing costs (as opposed to broadening access and lowering costs), that can be a market stimulated choice.

There is more that could be said but I'll leave off at this point. There is an upshot to it, however, and that upshot is, in fact, the reason all governments seek state involvement in the economy. They do so in various ways and I am well aware that right-wing opposition politicians often talk about limiting state involvement in the economy. Once they get into power, however, and have to implement their policies, they discover that their discourse was just that: discourse. Barriers to market entry, security issues, morality, the need to deliver election promises, expanding capacity, providing further grounds for economic development (increased access to higher education), all begin to affect government decisions and even right-wing governments come to understand why we have a state and why that state needs to be involved in the economy.

Health care, as I said in my previous blog in the US, is a case in point. Here, premiums can be lowered by limited the access to health care if that access impedes profits or raises premiums. Unfortunately, the thing that increases costs in health care is sick people ... the very people who need the product.

Vancouver, Transit, and Taxes

Metro Vancouverites have voted overwhelmingly to reject an 0.5% increase in sales tax that would have been used to fund transit. If you missed it, CBC reporting on the story is here. The vote was not even close. The margin was, if memory serves, close to 2-1 against. I confess that I would have voted for this increase. But, what confused me is not that others voted differently than I do. I've said before, I'm used to being in the minority. I recognize that the vast majority of Canadians seem to think about public issues differently than I do and the fact that I happen to disagree with the majority is not a good enough reason to write a blog. Indeed, if that were my standard for blog writing, I'd be writing all the time :)

What is interesting about the Vancouver vote is how confusing it is. I remember being similarly confused when BC rejected the Harmonized Sales Tax and, by referendum, decided to keep the GST and PST, which means that BC residents pay tax on tax (something that would have been eliminated by the HST, thus ultimately saving British Columbians money). I found it confusing that in the name of rejecting a tax (the HST) British Columbians elected to actually pay more tax (PST + GST). What seems to be at issue here is the word "tax," the conception of what taxes are spent on and who spends them, and the results. I'll speculate that there is something else going on here as well and that something else is a failure on the part of pro-tax people to properly explain what taxes are, what they do, and why they can be a good thing. There is a certain degree of nuance in this argument (or, at least there should be, whether I meet that bar or not remains to be seen), so bear with me.

One thing that is confusing about the vote is that the proposed tax increase was very small ... very, very small: 0.5% increase on the PST. Here is what this change amounted to. Imagine you are buying a chocolate bar and the PST is 7% (BC's rate). The GST in BC is also operative, thanks to an earlier referendum so  we have a total sales tax rate of about 12%. That means that if you buy a chocolate bar for $1.00, you pay $1.12. Everyone who has ever bought a chocolate bar is familiar with this. PST and GST apply to some goods and not others. Necessary goods -- like groceries -- are not taxed. If this tax increase had passed, the price of the chocolate bar would have rise to $1.125, let's round up $1.13. That is it. You would have paid $0.005 extra per dollar that you spent on taxable items. In return for this, BC  would have gotten what everyone agrees are needed improvements and maintenance to its public transit system. In addition, this tax increase would have leveraged other funds that would have actually brought more money in than was being spent in local tax dollars. In short, for a small price, people would have gotten a good return and sustainability longer term for public transit in a rapidly growing city that really needs this transit.

What will be the result of the no vote? Well, it is hard to say. We should not exaggerate the effects of referenda vote (as I argued in a previous blog). However, the longer term prospects for public transit are not good. We can expect more crowded commutes into the city from outlying suburbs, more time absorbed for commuters as more people are on the road, an increased need for road maintenance. In short, this vote will not eliminate the need. Public transport is simply something that is needed. I just got back from a vacation in NY where I used public transit -- the subway -- and it was great. I've done the same thing in Toronto and Montreal. Transit is the ability to move people from one place to another. That is what you get for it. All cities need this ability because people need to move from their homes to their work or to shop or go to school or to play sports, etc. Thus, voting against maintaining transit will not eliminate the need for it and will simply push people to use alternatives (private transit), which comes with its own costs (particularly but not exclusively road maintenance). Thus, the situation in rejecting this tax is not "will you pay the tax or not?" but "when and why will you pay?" If you do not pay, you will not get the service. You can see why I am confused. I did not understand why people would vote against the GST so that they could pay tax on tax. I don't understand why people would vote against this minor tax so that they can make their lives more difficult -- and potentially more expensive -- in the future.

The tax rate is important here. It is not just that it is small but that it is so small that it will go unnoticed. The anti-tax people made it seem that each person was going to have to pay a new tax rate at the end of the year. Their web site is here. But that is not the case. In fact, with the rounding up and rounding down that we do when we pay for things now that the penny is defunct, it is doubtful that anyone would have noticed any increase at all in terms of their disposable income. I've said this before but a very small tax spread over a very large number of people can generate important revenues that we can use for important public goods that ultimately save money. Hence, health care is supported in this way and ultimately saves Canadians money.

The problem seems to be that there is an institutionalized group of tax opponents and that there is considerable public confusion about the use of tax dollars. Generally, both of these factors relate to increased alienation from the policy formulation process and from government. I listened, for instance, to one public transport advocate on CBC arguing that measures such as this should never be put to a vote anyway. The government should simply have made the "tough decision" and imposed the tax. This would, of course, allowed him to get what we he wanted (and, btw, me) but it would have been wrong. The issue not that people voted against a tax increase that was not really an increase for reasons that are deeply confusing and ultimately counterproductive. The issue is that it is difficult to make the case that the state is a good guardian of public funds. In the case of this  tax, a great deal of opposition to it seems to be related (at least according the web site I cited above) to antagonism to transit authorities. About that, I know nothing but it would not surprise me. In other words, people voted against the tax because they believed that any increase in  taxes was wasted money. The anti-tax people seem to have taken advantage of this belief.

Why would people believe this? In part, as I've also said before, I think it comes from a false set of beliefs about how things get done and the politics of public policy. Elections are rife with people telling other people that they can get something for nothing. I don't think the people who voted against a very small increase in taxes that would have gone unnoticed really are that cheap; nor do I think they oppose public transit. Nor do I believe that they just want to pay more down the road for the same product that they are getting now (aka, transit). I think their opposition to the tax was vested in a sense that the state is malfunctioning and that they will pay more taxes (even if that amount is small) and get nothing in return.

Let us consider the claim made by the anti-tax folks. The new tax will cost each taxpayer $258.00 year. This might be true. I don't know and I'd like to see the math, but let us assume, for the sake of argument, that it is true. This sounds like you will have to write a cheque for $258.00, of course, when you won't but there is something else to notice here as well. For the average middle class Canadian $258.00 over the span of a year, even if you had to pay it directly, is not a lot. It amounts to $5.00 (give or take) a week. There are Canadians for whom this is a serious amount of money and that in itself is a problem, but the average middle class Canadian will, I suspect, spend a great deal more on Tim Horton's coffee each week. If you live in Vancouver ... Starbucks will run up that tab even quicker. The total amount, in other words, might be something that is subject to debate in terms of who can pay what but ... it really is not big.

So, we are left with a question: are Vancouverites dumb? Are they so dumb that they would rather save a pittance now to pay more later; are they so dumb that they don't understand that the need to move people is a fundamental element of the modern city? Are they so dumb that they cannot recognize that their clogged commute in their cars is the result of a bad transit system? Of course not. Instead, what this vote highlights is the depths to which the public perception of government has fallen. Ordinary, reasonable people are not willing to trust the state with an $0.005/$1.00 tax increase. They can't believe the savings will make a difference to them because they are not that dumb. The real lesson, the real issue, then is a need to regenerate the state and get it working. Rather than trying to find a way to impose this tax increase in an anti-democratic way, the advocates of public transit -- myself included -- need to redouble their efforts. We need to show how a democratic and transparent state can work effectively. Until that happens, these kinds of votes will continue to happen.  

Having Your Power

The sale of NB Power to Hydro Quebec is controversial (in NB) for all the wrong reasons. First, no one who supports capitalism has any reason to be upset at this. I am not trying to make an ideological statement here or win cheap political points for the left. I'm trying to state a fact. Regardless of whether NB Power is a public utility or a private company this is what happens in a capitalist economy: larger companies buy up smaller companies. That is "the nature of the beast": to not like it is to not like capitalism. Second, I might be really wrong in this but I can't help but think that there is some anti-Quebec feelings mixed into this equation. I hope not, but I wonder if we'd get the same type of reaction if the company looking to by NB Power was from Ontario? (A quick footnote, I think we'd get even more negative reaction if the company was American.)

What people should be concerned about is the rationale for this purchase. The NB government wants to sell NB Power because it is loaded with debt and mired in an antiquated pollution making stock. The debt is the big issue. Hydro Quebec will, in effect, absorb something like 25 or 30 per cent of the provincial debt. With the deficit skyrocketing, the provincial government was looking for ways to shed debt. This will allow them to go to the electorate with an economic platform that will not increase taxes and will keep debt servicing charges (interest) lower than historic levels even with increased deficits. In the intermediate run it will make it easier to balance the provincial books and allow this government to claim that they are good financial managers. This sale, in other words, creates  financial space for Graham government and that is its main rationale.

Here is the issue: why is NB Power loaded with debt? The answer is also pretty simple: New Brunswickers have not wanted to pay the full cost of their power. Here is the problem: if you don't pay the full cost, the price of power doesn't magically sink. Someone else has to pay that cost and that someone else, in the case of a provincial crown corporation is the taxpayers or ... exactly the same group of New Brunswickers who don't want to pay the full cost of power. In order to keep power costs low for political reasons, the NB government (both Liberal and Conservative) have allowed cash shortfalls to be run up as debt, rather than increasing taxes to pay for them. In this sense, NB taxpayers traded short term lower power costs for long term debt in a crown corporation, that is a corporation that is owned by the taxpayers.

You can think of it this way. Imagine your ... let's say car payments go up from $100 to $110 per month. Now you don't want to pay this extra amount and so you create a company, owned by your family, to manage your car payments. You tell that company that they cannot increase your car payments beyond the $100 at which they now stand. But, the cost of the car is actually $110 a month. So what does this company -- remember you created it and you own it; that is why you can tell it not to increase the car payments and it has to do what you say -- do? It borrows the money. The bank, of course, does not  just lend you this money gratis. It charges an interest rate. I'm making this up so let's imagine that the interest rate is 10%/month to keep it simple. The first month, the company is in debt only $10. It is a small amount; no one notices and not a drain on anything. After one month, however, it is now in debt $11 because of the interest rate and in month two you add another $10 to that debate because another car payment is due. So at the end of month two, this company is in debt $21 in revenue shortfall and interest. Now add 10% and that is increased to $23.10. Let's do one more month: 23.10 + 10 = 33.10 + interest = 36.41.

So, in order to keep your car payments lower then the cost of those payments, the end result is that at the end of three months, the company you set up to manage payments is $36.41 in debt, or one third of pay. And, here is the kicker: $6.41 of that debt are interest. It has been accrued as the cost of service on month your company borrowed. It produced nothing so in effect there is nothing to show for you. One could argue, and I would, that there $30.00 of that interest represents the real cost of the car and so you have driving the car to show for. However that other $6.41 produced nothing at all. No roads, it is excess what one would have paid for the  car had one gone along. Now, imagine that your car needs a repair. You've already told that company that it cannot charge you more then $100 a month so it goes out and borrows the money for the repair and this ads another $5 to your bill. And on and on and on .... The only problem is that you own the company that manages your car payments. After a year, this company is deeply in debt with no way to pay that debt. I don't have good math skills so I can't say quickly how deeply in debt it would be but it would have $120 in payments along, but all that interest compounded, plus repairs. The bill would likely be over $150.00 or more than a  car payment and a lot of that would have been accrued as debt serving or interest.

The real problem is that you've lost track of things or weren't paying close enough attention and are shocked, now, to find out at the end of the year that you have a big honkin' bill to pay and forget that the reason you have to pay it is because you didn't want to pay smaller bills as you went along. What's worse, let's imagine that the economy has turned bad and while you have not lost your job, you did not get your hoped for raise this year and your hours have been cut so that the company you work for can balance its books. So, now you have a big honkin' bill and no way to pay it. What is more, the interest on the debt you've run up is greater than the difference of the payment that you did not want to make and  the real pay. In my example, remember, you were trying to avoid paying an extra $10 a month. Well, if your company is $150.00 in debt, the interest is now $15/month. In other words, you're paying more in interest then the cost of originally biting the bullet and paying the extra tab in the first place.

This is what happened to NB Power and this is why this sale should be controversial. It is not whether or not someone else  can run NB Power more efficiently or any "economies of scale" that might or might not come from being part of a larger company. The issue that we should be thinking about is why is NB Power so debt laden. In effect, no one wanted to give New Brunswickers the bad news: there is no free lunch. If you want power, you have pay for it. Instead, government after government said "well, we'll make NB Power swallow the bill" as if NB Power were not owned by the taxpayers. In other words, to give short term lower cost power, the government said "you can pay more -- and much more -- in the longer run by having NB Power run up a debt" and New Brunswickers, for one reason or another, said "yes, we like that deal." Maybe they were ill informed; maybe they thought "economic growth will solve the problem in the longer run;" maybe they thought NB could sell power to the US and make a profit (although exactly where this power was to come from is not clear); maybe they just didn't know any better.

There is a further problem here. In lowering the cost of power, NB has actually increased consumption and whether we should have or not is another important issue. Consumption of power is bad for the environment. And so in keeping power costs low, NB has actually worked against environmental protection by putting more pollution into the environment than would have been the case.

These are, in my view, the issues we should be thinking about with regard to this sale.

Don't Cut Taxes

One of the few good things about this recession is that there has been very little discussion of cutting taxes as a way to stimulate the economy. This might be because the US has tried this and it did not work and so public commentators have seen experience and decided against offering this advise (which would be learning from history, also a positive thing) It might be because we are getting some common sense in public discourse on taxes. I don't know. Whatever reason, the old common sense "cutting taxes is good for the economy" seems to have gone away at least temporarily and in its absence we can have a serious and hopefully accurate discussion of what is good for the eocnomy.

Cutting taxes is actually a truly horrible way to stimulate the economy. Few economists actually think it works. The "cut taxes" argument instead comes from public commentators (pundits) of various sorts and journalists. People who actually study the economy have little faith in it. Why? Because tax cuts have little effect on spending habits and what effects they do have can be odd or even contradictory. I'll give you an example to illustrate my point. Suppose that one wanted to cut taxes to stimulate the economy. By stimulating the economy, here, we mean increasing consumer spending in order to increase the amount of goods purchased so that businesses make more money and hence get more stock from their suppliers who in turn have to hire more workers to produce this stock, thus increasing employment. For those with a more detailed knowledge of economics, I know that is a dramatically simplified explanation but it serves its purpose.

The problem with tax cuts is that it does not do this. Suppose, for instance, that the government wanted to stimulate the economy through a tax cut. And further suppose that there are about 20 million tax paying Canadians. A $100 tax cut for each tax-paying Canada would cost the government $2 billion, a fair piece of change. There seems to be some logic here. I happened to win $100 at a basketball tournament recently (the ever present 50/50 draw, as those who frequent minor basketball tournaments will know). What did I do? I spent it. I took my wife and daughter out to dinner (my son was off with his friends), picked up a couple of extra things for the house, splurged on one of those fancy coffees at the local coffee shop, etc. Three days later my $100 was gone, right into the economy. Should not a $100 per tax payer cut work like this and stimulate the economy but instead of Andrew Nurse spending his windfall, you'd have 20 million other Canadians doing the same thing?

No, because tax cuts don't work like this. Instead of getting $100 on a Saturday evening right before supper, what you do is pay less taxes throughout the year. Most people are paid twice a month so they get 24 pay cheques (or, electronic invoices as we do here at Mount A), So instead of having $100 in my pocket I have an extra $2 and change in my bank account every 15 days. Will that $2 change the way you spend? What will you add to your grocery list for $2? Will you go out and buy your spouse a snazzy new gizmo with that $2? Or, will you get your friend a more generous Christmas present or drop a bigger donation than you otherwise would have in the plate at Church? (Sidenote: I have been trying to create an argument that Churches are good for the economy because they are ruthlessly efficient spenders. Everything that comes in one door goes out the other to support food banks, educational programmes, youth groups, drop-in centres, clothing drives, missions, etc., but I have not gotten that argument worked up yet.)

It is unlikely. My daughter might spend the $2 if she discovered she had it but she's nine and $2 is a fortune to her. My son, who is 15 would not. He'd pocket the change. Most adults would ignore it. It is simply not large enough on an individual tax-payer basis to change consumption -- spending -- patterns.

What about a bigger cut? OK, let's double it, now you have $4 every two weeks going into your bank account and the government is now in the hole $4 billion. What big ticket item would you buy because of this? You might buy an extra coffee at Tims but that won't make any difference because Tims will not need to hire anyone extra to serve you. The server just needs to pour one extra coffee or two or three. How long does it take you to pour three extra cups of coffee in a two week period? You might buy an extra chocolate bar while grocery shopping and if that were done on a mass scale it might have some minor effect, but I suspect most people will keep to their regular grocery list. Certainly, no one is going to take the family out to dinner one extra time because they have an extra $2 week (in our best case scenario). Will you buy a new car or refinance your mortgage for an addition because of this? Will you take an extra vacation to PEI this summer (I love going to PEI) because of this money?

Again, we are in a situation where the tax cut is ineffective and we have cost the government -- which means we taxpayers who will need to pay this back someday -- a lot of money. So .. why do people continue to argue for tax cuts as some supposed holy grail of economic stimulation? Well, as I said, in part they don't. The disastrous record of the Bush administration and the silly GST cutting policies of the Harper government -- in which the state's capacity to respond to economic problems was zapped for purely political reasons -- have thrown some measure of cold war on the idea. In other instances, those continuing to argue for tax cuts do so from the perspective of ignorance. They either don't know their economics or have not done their math or both. Whether because of bad math or bad economics, their advise should be disregarded. I suspect those who continue to argue for tax cuts do so out of an ideological predisposition, which again, is good reason for care in heading their advise. Ideology detached from reality is ... well ... fantasy. And, does anyone want to put something as important as the national economy in the hands of someone who lives in a fantasy world?

The good news, as I said at the beginning, is that we are now getting past the fantasy world. We can now have a serious and hopefully effective discussion about the balance between the state and the market, what each can and should do, what is more effective and efficient. Canadians should welcome a more realistic debate even if it is the unfortunate fallout of failed economic ideas.