Smoking Crack

Should anyone be concerned that Rob Ford smoked crack and lied about it? Yes. And, for a whole bunch of reasons. There is, on a first and most important level, concerns about Mayor Ford's life because at least some of the behaviour in which he has been engaged is, quite simply, dangerous. On a second level, there is the issue of governance and whether or not Mayor Ford is fit to govern (and I don't mean in a moral sense but in a practical one: can he actually make the decisions that a mayor needs to make in his current condition?). There is also the issue of Toronto's public image. It has clearly taken a black eye from the soap opera that has become Toronto politics.

But, there is another reason voters should be concerned. The reason relates to why they voted for him in the first place. In fact, that is a question. Why did those of you who voted for Rob Ford … vote for him? Again, it is possible that there are a bunch of reasons but one of the big ones was his tax policies and his promise to end the "gravy train" at city hall. In fact, I heard an interview on CBC where a middle class voter basically said that everything else in the Rob Ford administration was a sideshow. He got a tax but and he was happy about that and so would vote for Ford again. In addition, of course, there is Ford's tough zero tolerance stance on crime, drugs, and gangs.

What those people who voted for Ford need to ask themselves is this: how did I get taken in by a crackhead? Is that too blunt? Sorry. These are not just rumours. The police investigation is fairly damning. Even putting the best spin on it -- the spin Ford, in fact, is offering -- you got taken in by a  drunk who occasionally smoked crack.

People who voted for Ford need to ask themselves some serious questions:

• What does the fact that you were taken in by either a crackhead or a drunk say about your judgement?
• What does the fact that you voted for a rank hypocrite say about your judgement?
• Would offer Ford up as a role model for your children? If not … why would you vote for him? In other words, are you willing to set such a low bar for leadership that you'd actually pick someone who you would tell your children *not* to emulate? If so, what does that say about your conception of proper leadership?

Sound harsh? It should be because the election of Rob Ford was silly to begin with. Its now been made even sillier by virtue of the truth. People who voted for him were, in effect, duped by a con man and at least a good hunk of them (to judge by public opinion polls) are saying they will let themselves be duped again.

What about the line "at least I got my tax cut." In effect, this is the same as selling your vote. It is just a legal way of doing it. For the record, I'd argue that before we implement tax cuts, we need to think about the services they provide -- police, fire, EMT, etc, -- and whether or not we want those services but that is a discussion for another day. A failure to consider these things is a failure to consider policy, the public good, the effective functioning of the city, security, among other things. All of which are cast aside for a few bucks. Moreover, think about the message you are sending (say, to your kids): as long as you get a few extra bucks in your pocket you'll vote for a person and not look into his character, not consider whether or not he;'s a criminal. In fact, even knowing he's a criminal is OK … as long as you get your tax break (aka bribe).

Why be concerned about Rob Ford? Because of what it says about those people who voted for him.

Taxes

What good are taxes? The general view is this: not much. There are more nuanced and sophisticated views, to be sure. The problem with the general view is that it feeds into an anti-tax politics that really does little to provide education into the character and nature of taxes. Because those people -- perhaps like me -- who feel taxes can serve a useful function have been silent in Canada's on-going consideration of taxes, only one side really gets any "air time." The result is that the more sophisticated and nuanced anti-tax perspective links up with the general anti-tax feelings of ordinary folks to create a huge bias against taxes, making it impossible to have a concerted discussion of this issue. I know not many people read this blog and so I'm not about to change the character of public discourse by myself. But, I thought I'd give it a go any way. What good are taxes?

To answer this question, we need to bear in mind several points that I have made over the years in this blog. One point I've tried to make (perhaps ineffectively) is to demonstrate that tax cuts do not necessarily help the economy. I'll not go at this issue again since it is a point I have already made, except to say this. The argument we often here "economists say  tax cuts will help the economy" is wrong. I have a number of friends who are economists and they do not say this. They say that the issue of cutting taxes needs to be studied and one cannot assume in advance that a tax cut will either help or hurt the economy. It is a matter to study; not about which to make assumptions.

The second point we need to make to address this question is that we need to try to approach it in a non-ideological way. This point follows from what I said in my previous paragraph. Tax cuts are often associated with right wing politics and with good reason. Conservatives often talk about tax cuts (their historical record is, of course, mixed, but currently tax cuts are associated primarily with the right wing. It gets easy, then, to see a discussion of tax cuts as a left v right debate. I think that we need to put this debate on hold and consider what taxes can and cannot do if we are to have a serious discussion of tax rates.

The third point is that we need to think about what the problems with taxes might be. Several years ago we ran a conference on regional development here at Mount A. As part of this conference, there was a discussion of tax rates and the results of that discussion surprised me. I found that capitalists were not arguing for tax cuts. They liked them (particularly corporate tax cuts) but did not see them as necessary to economic development. Capitalist thinkers (often associated with universities and think tanks) argued for tax cuts but business people did not. Instead, what business people asked for was consistency. In effect, they said this: stop changing the tax system every year. Stop messing around with this deduction and that deduction. Instead, keep things the same for a number of years. We are confident, they said, in our ability to do our job. But, if tax rates, etc., change every year, this adds new expenses  to what we do. We'd like tax cuts but what we really want is consistency year after year in the way taxes are done. If we could have that, we can lay our plans and do our jobs. This suggests that the real problem with taxes is not their rate but government tinkering. I'd be willing to accept this point.

With these three points made, we also need to consider what taxes do. Taxes are a way of collecting revenue for public spending. I have found it interesting over the years that the same people who argue against taxes will also be quick to argue that the government should do X or Y. It could be anything: fix up the local ball park, buy a new fire engine for the local volunteer fire department, fix the pot holes in the streets, etc. Yet, all these things cost money. In other words, we (citizens) make demands on our governments (federal, provincial, municipal) and then ask our governments to fulfill these demands at the same time we say "but we don't want to give you any money to complete these tasks." Some things can be put off for a year or should be the subject of longer range phased in planning. I have no problems with that view. I own a home and that is precisely the type of calculation I do with regard to repairs (how much money do I have and what are my priorities? What can I do part of this year part of next year?). This is fair enough. But, it still does not miss the point that governments need revenue because of demands from citizens and these demands are not coming from "special interests." They are coming from ordinary people. Nor are they coming from "welfare bums." They involve things like education, road repair, health care, national defense, environmental protection, policing, amateur sports, libraries, etc. In other words, things that ordinary people use and like and about which there is no debate of their merits (except on the fringes of public life).

Taxes can also be efficient. This is one of those need to study things because it is counter intuitive. The more sophisticated anti-tax perspective is predicated on the idea that the state (collective action) is inherently inefficient compared to individual private market undertaking. Yet, as I said, this is an issue to be studied not assumed. In some instances that state may indeed be less efficient. In other instances -- health care springs to mind -- it tends not to be. Canadians get a relatively good quality health care for their tax dollars. We don't have perfect system people don't like waiting for health care. I don't, at least. But, compared to other actually existing health care systems, Canada's is not bad. Indeed, most of the countries that have better health care systems then Canada actually have more (not less) state involvement. The US health care system is not the disaster most Canadians think it is. It is has some serious problems but so does Canada's. We can debate whose problems are worse, but the point I want to make is that Canadians actually pay less for health care then do Americans on average even when you include what Canadians pay in taxes toward health care. Here, then, is a counter intuitive situation: taxes can save money.

My final point for now: there may be some areas of the economy where the state should not be involved. These will be culturally determined but that does make them less real. Let me continue with my previous example. Let us assume that Americans are an intelligent bunch. Why, then, do Americans pay more for health care? That does not seem like a smart thing to do, does it (to pay more then you have to for something). The answer is that Americans want to maintain a largely private sector mode of health care delivery. And, that is worth something to them and so they are willing to pay more  for it. This is a value (and, hence, cultural) and it has an effect on the population. Canadians -- as I've pointed out before -- look at the world differently then Americans. They viewed fully privatized health care as inefficient: it was not providing people with the health care they needed as a reasonable price. Hence, they changed it.

Now, Canadians will have other values -- there will be other spheres of the economy -- on which they do not want tax dollars spent. We have seen, for instance, that Canadians are remarkably skeptical about using tax dollars to fund professional sports (say, to build arenas). Oddly. Americans appear to be less sensitive to this point then Canadians. The Dallas Cowboys got a whole bunch of public money put into their huge new stadium. In thinking about taxes, then, we also need to think about spheres of the economy where we don't want tax dollars spent. This may end up costing us more on average or collectively then if we had the state involved. Tickets to hockey games, for instance, may cost more if the state does not contribute to the costs of arenas. But, we might say "gee, that is OK and we can live with that because we don't believe in spending public money on professional sports teams."

As a first salve in a different discussion of taxes, then, these are the points I would "put on the table": that we should try to be non-ideological, that we should study the issue and not make assumptions about the merits or demerits of state spending; that we need to consider where the problems with taxes lie (for instances in a lack of consistency over time as opposed to the specific rate), that public spending is not inherently inefficient, and that there are value-based spheres of society to which we might not want to see public spending (the direction of tax dollars) directed. These will differ from society to society and so comparison with other countries might in terms of taxes might not be instructive whereas a consideration of Canadian values might be.

Economy 101

A great deal of attention has been devoted to Ignatieff and Harper's deal, which preserves -- at least for the summer -- Harper's government and allows the Ignatieff to claim some minor victories and devote more time to party building all the while trying not to look like the Liberals are propping up the Tories. This kind of politics -- who will take the blame for an election no one wants -- is interesting as are the behind the scenes manovering. If one likes this kind of speculative Ottawa-centric political discussion (and, I'll confess that I find it interesting), then this type of national-politics-as-soap-opera is making for good viewing. Is there anything more in it? Should we, as some are doing, debate Ignatieff's sincerity? Should we, as some are doing, try to tar the Liberals with the Tory brush?

I don't know, but there is something important to note in the political manovering that has followed in the wake of economic crisis; that is: the degree to which Harper at least is committed to the very free market, small state policies that created the economic crisis in the first place. Harper, for example, is busy rationalizing the huge public debt his government has run up (as did Mulroney before him) as a short term expediency. Within a year, maybe two, he says, things will return to normal, five years down the line, Canada will again be in the black and governments can resume the policy of cutting taxes and slashing programmes.

Hmmm .... wait, hasn't anything be learnt here? After all, the Canadian debt is remarkably higher then it needs to be because of cuts to the GST that did nothing to increase spending and hence address looming economic problems and -- as I believe I have mentioned before -- how could they? A 2 cent cut on GST does nothing -- and can do nothing -- to alter consumer behavour. This about it like this. Suppose you want to buy a chocolate bar. Does the fact that that chocolate bar is now worth $1.15 instead of $1.17 change your thinking on the purchase? Does the saving of two cents convince you to buy two chocolate bars instead of one? The only thing cuts to the GST did was impoverish the fiscal capacity of the state to address economic problems when these popped up, which is exactly what happened. The cuts to the GST did nothing to help the economy but the loss revenue that the state would have had if all these small two cent purchases had been pooled would have significantly reduced the level of debt Canada is now accuring and hence lessened the amount of time needed to pay it back, perhaps but a year or longer!

Why would Harper and his government make such an elementary mistake? Why would they not want to have the capacity to address problems if they occurred? Why would they not, in other words, want to save for a rainy day, taking a prudent and cautious approach that would create options? After all, they are supposedly conservatives ... should they not love prudence, caution, and saving for a rainy day? The truth is that they don't seem to think of these things. Thus while they are willing to preach them as a recipe to address individual problems, they don't seem to think that it is good policy for the state to plan ahead wearing something other than rose-coloured glasses. What they are telling us is that as soon as they can they will reintroduce the exact same policies that helped make a mess of Canada's national finances in the first place.

Now, this is an important point and my wording here is important. I don't think Harper's government caused the national economic crisis. (Conservative friends of mine who are already saying Dexter's NDP government will hurt the economy ... same thing). The international economic crisis really is an international economic crisis. The issue is not did Harper cause it but ... how did he respond to it? Did his government put any forethought into policies? Did they adopt a cautious approach to finances that allowed the state to maintain capacity to address a problem if one popped up? Problems simply occur. That is the nature of life. The issue is not that they occur but that we learn from that occurence so we don't make the same mistakees again.

Unfortunately, this is where Harper and his government have fallen down. They don't seem to have learnt anything. If I made a set of assumptions that turned out to be wrong and those assumptions cost me a whole pile of money, I'd reconsider my assumptions. Harper and his government have not. And, for that reason alone, they are a dangerous national government. I don't know about you, but I want a government that is not so wedded to ideology that it refuses to consider lessons it can learn along the way.

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.