From Matt: ‘A triumph of tax madness’. The federal Conservatives are announcing an election-year budget containing a large number of bad economic policies, as well as balanced-budget legislation – rightly called ‘bonehead economics’ by The Globe and Mail Editorial Board. Jeffrey Simpson surveys the wreckage. Simpson draws parallels between Harper’s fiscal policy to that of George W. Bush – politically-targeted but expensive and economically-distortionary tax cuts, and launching a war effort while slashing the defense budget.
For me, this uptick in misguided economic policy from the Harper government underscores two points. (I) Character matters in politics. You want someone in office who puts the public interest ahead of their own political interest. Stephen Harper has a long history of doing the opposite. (II) Much of neoconservatism is founded on economic theories that have been soundly debunked. Revisiting these in detail will be a theme in a series of upcoming posts. But to give a brief example, take austerity – the idea that governments should tighten their belts in times of recession to avoid escalating debt levels and to increase investor confidence in the government’s credit-worthiness. Much of the European Union adopted this approach in the wake of the Great Recession, led by Germany and the UK. The result has been a much longer and deeper recession than in other places that opted for stimulus, such as the U.S.
Austerity during recessions is bad economic policy because recessions are usually triggered by weak consumer demand resulting from some correction in the market (e.g. the bursting of the housing bubble); they are not caused by sudden destruction in production capacity (except in cases of war or natural disaster). Reducing public spending weakens demand even further, which exacerbates the shortfall in public revenues – necessitating further austerity to achieve balance. As the recession deepens and lengthens, capital spending ends up being cut in both public and private sectors, and eventually production capacity does decrease – locking in the weaker economy. Stimulus, on the other hand, increases consumer demand and encourages maintenance of production capacity. It involves more debt in the short-term, but the long-term positive effect on growth reduces the long-term debt burden.
The economic misguidedness of austerity is one of the reasons balanced budget legislation is such bad policy. It makes it harder for governments to use fiscal policy to smooth out volatilities in the economy – one of the most important functions of fiscal policy.
From Ian: The geopolitics of renewable energy
A recent piece in The National Post looks at energy politics in Saudi Arabia and how it has begun to prepare for the concept of ‘peak demand’ for oil, as efficiency, renewables and alternative sources of fossil fuels from western sources eat away at the demand for middle eastern oil. You hear a lot of talk amongst academics about the dire geopolitical ramifications of continuing climate change (war, poverty, etc.), but you hear a lot less about the geopolitical fallout of climate action that reduces emissions. One of the obvious ones is that there is likely to be lots more upheaval in the Middle East. The current oil crash may be part of it. However, Saudi Arabia is also taking steps to get ahead of the renewables market. The government has put in significant funding to establish the King Abdullah University, which has attracted researchers from around the globe (the religious laws are not enforceable inside the university) and which has a particular focus in creating new renewable energy technologies.
Should the mailman be criminally responsible for ‘possessing’ drug shipments?
In the latest battle in the War on Drugs, the US government is attempting to criminally prosecute FedEx for the role it plays in drug shipments. FedEx is being prosecuted as a corporation, which (like a person) can be the subject of a criminal prosecution. Central to the case is the question: “Even if corporations can be held criminally liable, should a courier service like FedEx be held liable for ‘possessing’ what bad guys may send through the service?” While I tend to think that criminal proceedings are not the logical place to try a case like this (and may set dangerous precedents if there is a conviction), I tend to agree with the spirit of the government’s argument that couriers should be held accountable to at least put moderate measures in place to screen their shipments for contraband and hazardous goods. For one, this is important to the safety of delivery employees, who should not have to worry about handling bioterror agents or explosives. However, this should be handled as an issue of civil liability or of workplace safety standards, not criminal ‘possession’.
From Niya: Stripping for a good cause. This week Saskatchewan’s Premier announced revised regulations, reversing the decision to allow licensed strip clubs in the province. However, the regulations do not ban stripping altogether. It is possible to apply for a special permit from the Saskatchewan Liquor and Gaming Authority, who will grant them to “worthy fundraising events” – where strippers will be allowed to undress to underwear and pasties. The reversal of the decision stems from concerns about human trafficking and sexual exploitation. While the impact on legitimate small businesses (bars mostly) – that feature strippers to get clients in the door – is worth considering, what made me think was the special occasion permit exception for charities. While I haven’t seen a response from the AFP or other formal group of fundraisers, or from any registered charities, I wonder about the impact it will have on them and if it will result in “innovative” new fundraising drives. I especially wonder about the response from charities that focus on raising awareness/supporting women who have been trafficked and sexually exploited. While this change in regulation could result in a number of new and potentially excellent corporate/charitable partnerships, I wonder how many charities will have to engage in some serious policy review about which organizations they partner with and how the use/share their brand and the associated permits, in exchange for funding that would have been provided by government organizations in the past. The formation of these new private/charitable partnerships may also result in an increasing number of CRA audits, which can prove overly taxing to small charities.