Anyone who has seen my Twitter feed this week has seen that I've grown quite frustrated with Canadian politics lately, with the fact that all of the parties took identical (bad) positions on the Potash decision being a particular annoyance. During the past two elections I have given the maximum legal amount to candidates I like (typically, but not always, Greens). This election, I don't even see myself voting, let alone donating.
Turns out my frustration is shared. Andrew Coyne had a fun set of tweets:
Elections are now officially meaningless. Politics has become a random walk: you can't predict what any party will do. What we need is an Economists Party. Nothing radical: just mainstream, consensus economics. ie very radical, indeed.
So: end subsidies. Full-cost pricing. Equity concerns met via Income transfers rather than price-fixing. So: end subsidies. No quotas, tariffs or unnatural monopolies. Public finance, not public provision. Benefits in cash not kind.
I love the idea of an Economists Party. The only drawback I see is that we'd all want to be Finance Critic. I do believe there is a core set of policies that most mainstream economists would agree on (though naturally any one of us would have the occasional idiosyncratic view – like mine on the need for enhanced right-to-know information on product labels).
My question for you is – what is the very first policy that a newly organized Economists Party should promote? I give mine below. Just visiting from Macleans will be surprised to see it has nothing to do with the GST or corporate tax rates:
My policy of choice – ending dairy supply management. Points from a Conference Board of Canada press release:
Since the 1970s, agencies under government authority have set the prices that farmers receive for their milk, and limited production through quotas to match anticipated Canadian demand for milk, cheese, butter, and other dairy products at those prices. To maintain high farmer milk prices and not undercut Canadian production, most dairy imports are restricted by tariffs of between 200 per cent and 300 per cent.
..Restricts farmers' ability to seize global opportunities -Global dairy demand is expected to continue its long-term growth, especially among the middle classes in China and India, and Canada's higher-price system limits its competitiveness in these emerging markets. As well, supply management has restricted Canadian dairy exports up to the World Trade Organization subsidy limits-Canada exported only $255 million worth of dairy products in 2008.
..Weakens Canada's ability to access global markets -Defending supply management in trade talks compromises Canada's ability to secure market access for other Canadian goods and services – including other agricultural products. Canada's current negotiations for access to the European Union market may be compromised by the status quo dairy system.
…The supply management system has other effects: distributing benefits unfairly, as buyers of dairy products pay more and effectively subsidize dairy producers; becoming a dairy producer is difficult, since it costs about $28,000 just to buy the right to sell the milk of roughly one cow; and reducing the international competitiveness of many dairy processors.
The cost to such a policy is high – Canadian consumers massively overpay for dairy products while at the same time our ability to enter into free trade agreements is limited by our subsidies to dairy farmers. The policy represents a wealth transfer from consumers to dairy producers of over 2 billion dollars a year (Source). I use dairy supply management as my example when I introduce The Logic of Collective Action to my Ivey students.
That would be my first policy proposal of a Canadian Economists Party – ending dairy supply management. What would yours be… and why?
Edited to add: Prof. Gordon brought up a good point I hadn't thought of – my policy suggestion not only entails ending an inefficiency, it is also a transfer of wealth back to consumers from dairy farmers. If we wanted to keep the transfer of wealth at the status quo (not sure why we would, but suppose we do), we could couple my policy proposal with a one-time payout to dairy farmers equal to the 30-year NPV of the value of the policy. By doing so we have ended the inefficiency without any (significant) net transfer of wealth from dairy farmers to consumers/taxpayers.
Worthwhile Canadian Initiative 
Universal Pharmacare tied into Medicare.
The National Health Service in the UK provides drug for home use. Canada doesn’t. Drugs weren’t the big cost when Medicare assumed its present form in the 1960’s. It was excluded on the grounds of cost. This has rapidly changed.
Right now Canada depends on a patchwork of public and private coverage for drugs. Seniors usually qualify for a provincial plan, Quebec has mandated universal coverage, the rest have income-tested public plans and varying degrees of workplace related private coverage and a smattering of individual plans, usually associated with provincial Blue Cross plans with medical underwriting requirements (exclusions happen)
Insuring chronic conditions like Type I Diabetes is a nightmare as personal insurance plans won’t buy a known loss and employer plans dislike having to payout a regular monthly benefit instead of a lump-sum. Type I Diabetes is among the most expensive of diseases to manage because it involves insulin which is brand-name (generics don’t exist yet due to recent drug developments) and expensive testing equipment (glucometer strips cost $1.00 each, on average).
We, the Economists’ Party believe that as an classic example of redistribution for the public welfare, drug coverage should be a government service. Furthermore, under the principles of community insurance rating, a large community (in this case, the nation itself) has a known and stable rate of sickness and need for medicine. Individuals have a highly variable rate. Therefore a community-based fund with the broadest possible contributor pool is economically and socially optimal for paying for pharmaceuticals.
Furthermore, aside from the reason of “it’s always been done that way”, we see very little evidence for supporting employer-based drug coverage. It is the business of business to engage in productive economic activity such as home construction, driving freight trucks, or operating a call centre. None of that has anything to do with providing drug benefits to employees. We believe paternalism of that sort is the purview of the state. Therefore our drug coverage initiative will be funded out of the Consolidated Revenue Fund, that is income taxes and GST. The cost of benefits for employees will be reduced to a tax charge.
We also believe that redistribution should be funded out of income, that is it should be proportional to ability to pay. Businesses in economic distress will not be burdened with the cost of benefits.
We also believe that this initiative will increase Canadians’ job mobility and optimize the labour force. Benefit coverage should not be a factor in seeking employment. That choice should be based on skills and straight pay. We believe that Canada deserves to have healthy, active, mobile workers who need not fear for their personal health during times of personal economic hardship.
I dunno. It’s a fun idea, but there’s a limit to how far I’d want to push this. What economics can do is show how certain policies could have unanticipated consequences, and that the winners and losers from a certain measure may not be the intended targets. We have a lot to say about how policy goals can be obtained, but much less about which goals should be adopted.
But in the meantime, there are a lot of Pareto-improving free lunches out there, so maybe we can be like the Bloc Québécois: an explicitly temporary coalition that will disband when its main aims – injecting basic economics into policy analysis and public discourse – will have been achieved.
Of course, like the Bloc, that means that it would be entrenched forever…
“there are a lot of Pareto-improving free lunches out there”
That’s my thought as well – that we can exploit those. As far as, say, the ‘ideal point’ of the equity vs. efficiency trade-off, there isn’t a lot we can say there, IMO.
But yeah, the post is intended to ask about bad economic policy than to be a ‘serious’ idea. I won’t be registering us with Elections Canada. 🙂
Mike,
Granted, most/all will want to be the Minister of Finance in the new Economists Party.
However, to demonstrate my support for this important innovation, I am willing to give up my dream to become Minister of Finance and become the Minister of Industry.
My first act will be to deliver a speech – in Regina before the Saskatchewan Chamber of Commerce where Brad Wall delivered his Hugo Chavez speech last week – explaining why Brad Wall is a dangerous demagogue who seduces those who lack principles.
In that speech, it will be announced that the potash decision has been cancelled – retroactively symbolically – to 1974 when FIRA was first passed by the Trudeau Govt.
Then, for good measure – it is Saskatchewan – it will be announced that [Andrew Coyne beat me to it]:
An end to all subsidies. Full-cost pricing. Equity concerns met via Income transfers rather than price-fixing. No quotas, tariffs or unnatural monopolies. Public finance, not public provision. Benefits in cash not kind.
And an immediate end to all farm management producer support organizations whose job is to extract rents from consumers and citizens.
As an aside, this debate demonstrates why it is critically important that an economist researches the linkage between these bad policies you and Coyne have enumerated and Canada’s poor productivity. The overarching objective of the potash decision – supported religiously by the potash CEO and other Cdn corporate executives – is to entrench Cdn executives so that they cannot be forced out through hostile takeovers. In other words, so they can continue with their mediocre management and strategies without risk of termination. As Stephen Gordon noted last week in the Globe, the foreign MNCs have much stronger records of R & D and higher productivity – relative to Cdn controlled and managed corporations. IF we really want to successfuly address our lower productivity levels, we have to directly confront Cdn rent seekers and their protectionist partners in the House of Commons who embed protection in Cdn law and regulation (and when MPs retire, are invited to sit on the Boards of Directors they so assiduously protected while in the House).
Ian
PS You may also want to look at Olsen’s second book, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, where he analyzes the consequences of The Logic of Collective Action at the macro.
I knew that when I read your post the first time, but my soapbox speech still stands.
Now, how about income tax policy? I want us to move to the Australian system where the Federal Government collects all income tax and the provinces/states get transfer. Plus welfare should be a federal matter, per Rowell-Sirois.
You had me at ending dairy supply management. Access to the cheeses of the world at reasonable prices. Where do I sign up?
I edited the above in light of Prof. Gordon’s comments RE: “We have a lot to say about how policy goals can be obtained, but much less about which goals should be adopted.”
Ha! As if an Economist’s Party would have any more stability/consistency of thought than what we have. I think between you, SG and AC you may have been soliciting comments closer to the Maxime Bernier wing of the party.
Still, eliminating Marketing Boards (a cartel of sorts that may have outlived its usefulness) seems like a good idea. But, as a GPC supporter, your leader’s support of cow co-ops and distributing to owners un-pasteurized milk seemed a bit short sighted – when you take into consideration the longevity of the voters you may gain. The e-coli pander.
I’d place term limits on politicians and members of the Parliamentary Press gallery. The coziness and bonhommie is stifling. “Pass the hors d’oeuvres.”
Economists love to hate supply management. But supply management allows covered sectors to meet self-reliance objectives with regard to the food supply, and also provides decent incomes for farmers. Neither is the case in other aspects of the food system, where most farmers get hosed. If anything, we will need more supply management, with the prospect of food supply disruptions in the future due to climate change.
Ending supply management is bad public policy based on bad neoclassical economics that oversimplifies both economics and the real world of public policy. Calling for it demonstrates why an Economists Party (that is, of people who only see the world in abstract terms based on flawed assumptions about how economies actually work) is a dangerously bad idea. Economists should form a party only after a prolonged period of researching the real world, sector by sector, to analyze its market failures (oligopolies, positive and negative externalities, economies of scale, imperfect information) and then develop policies based on real-world policy objectives that may be of interest than merely maximizing GDP.
Other policies:
no rent control and tax reform with first target for lowering being corporate taxes and first target for raising being consumption taxes
Cake, and eat it too!
I like the idea of using 30 NPV buy-outs to coerce an end to planningopolies like this. None of the beneficiaries of the policy would ever complain, and the cash would help them transition their industry to become globally competitive.
Hopefully Anonymous tipped me off to this Canadian political party:
http://reasonvancouver.ca/about-reason/
Ending agricultural subsidies would be a good place to start (I think the Economist has it at around $7-8 B/yr.
Place greater emphasis on crafting a comprehensive trade deal with India/Brazil over the stalled European Union.
End any existing import tariffs on ethanol.
Work with the provinces to improve personal finance knowledge across the country so that investors, young and old, have a better understanding about the power of saving and the dangers of over-leveraging.
Thanks for your suggestions everyone!
Marc: Your defense of supply management intrigues me, but you’ll have to do better than ‘you guys just don’t understand!’ Suppose this economist would like to learn more about the benefits of supply management – what sources would you recommend?
JvfM: There are a number of Green policies I don’t necessarily agree with (e.g. potash decision, half-hearted defense of long-form census). But nobody should expect to always agree with every aspect of a party. Lately I’ve just been frustrated with Canadian politics in general than with any one particular political party.
End occupational licensure…get rid of the Colleges of Phys/Surgeons, the Nursing Colleges, the Bars (not the kind for celebrating economic freedom in, the kind you get called to), the guilds, etc. I know it won’t happen, but it’s nice to think about. What a glorious fight that would be!! Beats any other health care reform I can think of.
Our own personal hobby horses aside the Economist Party wouldn’t solves anything. I think what we’re all really wishing for is less ignorance among the electorate. Take the potash thing. The underlying problem is that it’s political suicide for a politician to make an evidence based policy decision.
30 year NPV has got to be on the order of 20 – 30 billion dollars for milk alone. Yikes.
Or how about just saying that immigration as a professional in a regulated profession will only be approved if the professional is certified to practice by a Canadian regulator before immigrating.
What we have right now where the Feds bring in immigrants with professional qualifications and then those qualifications are ignored and discounted by provincial regulators is worse than wrong, it is a fraud perpetrated by the government on both on the immigrant and on society.
Given the nature of the issues facing the country and the world, I’d probably rank a carbon tax ahead of ending supply management…(destabilizing the global environment > paying too much for cheese, even speaking as someone who eats over a kilo of cheese a week)
Diminishing marginal utility of money would also seem to suggest strong support for redistribution from the wealthy to the poor, I imagine.
And the economists natural opposition to all monopolies should lead to the removal of all patents & copyrights.
This all seems pretty consistent with what Coyne was looking for (full cost pricing, income transfers, no unnatural monopolies (not sure why he wants to go easy on the natural monopolies though)).
On a slightly more serious note, I agree with Stephen’s first comment above, suggesting that economists will have more to say about the means than the ends. If Canadian society places a higher value on dairy farmers having a secure livelihood then it does on getting cheap cheese, then who is an economist to tell them they are wrong in their priorities?
I suggest starting an Economists International, with the Canadian Economists Party as a founding member.
My question for you is – what is the very first policy that a newly organized Economists Party should promote? I give mine below. Just visiting from Macleans will be surprised to see it has nothing to do with the GST or corporate tax rates:
Sorry, but I couldn’t resist the bait any longer. From last Friday’s Economy Lab:
Ottawa’s budget math doesn’t add up
Dr. David E. Bond is the retired chief economist of HSBC Bank of Canada
Two points flow from all of this. First, the future rate of Canada’s economic growth will not be particularly stellar. Second, reaching even the deficit estimates of Mr. Page will require more fiscal discipline than the Tories have exhibited in the past. Rather than announcing multi-billion dollar spending projects, it is time to start eliminating programs or the budget will never return to balance. Of course the Tories could restore their foolish cut to the GST and end the debate, but could you imagine them doing that?
http://tinyurl.com/33z8p8k
Answer to last q, pragmatically, no to restoring “their foolish cut to the GST”. So, how to “start eliminating programs or the budget will never return to balance”. Ummm, delay other tax cuts elsewhere? 🙂
Would an economists party be really that different from any other party? Nancy Folbre has a fascinating article pointing out that economists don’t have a code of ethics, and some of us could use one at times.
http://economix.blogs.nytimes.com/2010/11/08/ethics-for-economists/?hp
I don’t understand your frustration on the POT transaction. In fact, it meets three principal requirements: (a) politically, for the conservative, who are looking at an election in the spring, the potential loss of 13 seats — Saskatchewan residents are uniformly against the transaction, and would have punished Federal MP at the next election was an easy call, (b) The provincial government was against the transaction and was very vocal about it, since natural resources are the purview of the province, the Federal government simply preempted the decision that was bound to emerge. and finally (c) the Alcan purchase by Rio Tinto turned out to be a disaster for the province of Quebec — since the Liberals are still in power no one is making much hay about this, but the reality is that this has been a disaster for provincial tax receipts. As an addendum it has also been a disaster for Rio Tinto, paying $100 per share was well beyond the value of the company — the only group which did well were the Alcan shareholders (funny enough most Canadian pension funds were well invested into Alcan…).
Finally, and most amusing, the majority of POT’s management are based in Chicago (Can’t say I blame them) and the same holds for shareholders who also, as a majority are not Canadian.
Overall, harper did the only thing he could, he saw the mob moving in one direction, he had two choices: stand against the traffic and be trampled, or go with the flow… he chose the only reasonable outcome for him and his government. Sounds reasonable to me!
I’ve just realised why it would never work.
Think about the last meeting of the economics department.
Now imagine if that same group of people had to decide everything.
You see what I mean? 😉
Yikes!
“Nancy Folbre has a fascinating article pointing out that economists don’t have a code of ethics, and some of us could use one at times.”
“Think about the last meeting of the economics department.”
Thanks for the reminders! Being at a B-school I often forget what it’s like to be in a group of economists.
I think there is quite a paradox in this idea. As economists, we typically consider waste to be the top mortal sin, yet we’d be wasting precious intellectual resources in attempting to get elected while knowing perfectly well we’d have no success whatsoever. Thank god (or rather history), this is not Plato’s Republic and we’re no philosopher kings. This is democracy, where on average mediocre policy is the price we have to pay for making sure that no small group of powerful idiots gets to make our lives unbearable. And this way at least, everyone has enough freedom to contribute his little bit of excellence to the whole messy process. There’s probably some link to be made here with Buchanan’s rebuttal to Arrow’s initial social choice paper. I’m frustrated with our politics too, but as compared to any alternative in the real world, I don’t think it’s that bad.
This is where it fails right there. Income transfers are vulnerable to political attack in a way that price-fixing for the parts of society we want to protect is not.
What you would construct is, at best, a centre-right party minus some amount of populism unless you have made your goals clear. Among primary goals to me, for instance, is preventing/reducing income and wealth disparity, and permitting people to remain in their chosen occupations and livelihoods whenever possible. Since economists tend to be against these kinds of things for, as far as I can tell, purely ideological reasons, the idea of a rational, ideologically neutral Economist Party seems a little ludicrous to me.
And I think the term for what Marc is talking about is Food sovereignty.
The fundamental problem with an economist political platform is the tendency of mainstream economists to support post hoc compensation of losers from market forces rather than coming up with ways to protect classes of losers from losses in the first place. Post hoc compensation is extremely vulnerable, politically, compared to explicit/principled/full-throated protection of potential losers.
My problem with a economist’s party is that we’d all think we know better than we do, and start changing things en mass to fit our theoretical models. In reality, there are many reasons, including non-‘economic’ for which things are the way they are. I believe, someone with a economist’s view of the world – and forget macro that dismal science – would take a look at the world and generally believe that it runs efficiently, given some tracking error. The questions is whether an “economist’s party” would help or not.
I’m with Alex.
Plus, what if the economists’ party actually won? What the hell would we do then?
The only thing worse than government by economists would be government by lawyers. Errr.
“And I think the term for what Marc is talking about is Food sovereignty.”
How far do we carry that arguments? Subsidies for fresh fruits and vegetables in winter? Because, for the right price, I’d be happy to tear up my backyard and plant some banana trees (hey, if we’re going to be a banana republic, let’s do it right). Should Toronto continue to be dependent on milk products products which might be cut off in a crisis (i.e., milk produced by Quebec farmers) or should it be subsidizing its own cattle farmers to ensure food sovereignty? (I’m putting in my bid for grazing rights at Queen’s park!)
In any event, even if one accepts the “food sovereignty” argument there are better ways of achieving it than supply management coupled with punitive tarriffs. If society wants to pay farmers to produce products in order to keep them in business, than fine, let’s make a lump sum payment to each dairy farmer every year (hell you could dress it up as a payment to “preserve the country lifestyle” or as an “emergency milk reserve contingency payment”) while letting consumers purchaser their milk at the prevailing market price. I’d bet such an arrangement would be both cheaper for the public and would be far less regressive in its incidence.
On a related note, I’m reminded of the old cow-oriented description of European democracy:
“You have two cows. At first, the government regulates what you can feed them and when you can milk them. Then it pays
you not to milk them. After that it takes both, shoots one, milks the other and pours the milk down the drain. Then it requires you to fill out forms accounting for the missing cows.”
On the irrationalities of supply management by the US Dept. of Agriculture:http://www.nytimes.com/2010/11/07/us/07fat.html?src=me&ref=homepage
Mmmmmmm….chocolate fudge cheddar cheese:
http://www2.macleans.ca/2009/02/15/mps-and-chocolate-fudge-cheddar-cheese/
The politics will only change once the people change…that’s sorta how democracy works. But that’s okay! It’s a small price to pay for democracy. cheers
The point is: don’t take your message to the politicians, take it to the people.
Anyway, I’d like to see massive massive massive investments in infrastructure. I’m from Ontario, so I’m particularly talking of building subways to connect all of the GTA (including Mississauga and York Region) as well as high speed rail from Windsor to Quebec City. Think about what this would do for productivity!!
I don’t care how much deficit it causes. Massive massive infrastructure. Am I right?
With tongue in cheek–Are you sure the Economists Party of Canada would get enough votes to elect even one MP? Doesn’t the majority of the population blame economists for not predicting the 2008 global financial crisis? And even for creating the crisis in the first place (average person may not grasp the difference between a derivatives trader and an economist). Not sure people would be “voting for another crisis” as the opposition would spin your campaign in a fit of negative advertising.
Economists still need some re-branding and image restoration work before an economists party would work.
Maybe though, you could advocate for an “Economists Bloc” (comprised of economics-degree-holding MPs from all parties).
“An economist for PM! An economist for PM!…huh?…what’s that?…oh….oops…never mind”
“With tongue in cheek–Are you sure the Economists Party of Canada would get enough votes to elect even one MP?”
Well, they’d have to have the right platform and the right strategy. Run as the Economics Party, but run on a platform containing the sort of “economics” that Joe Q Public wants to hear (i.e., no trade-offs). Ideally, you’d discretely retain a gaggle of economists, preferably bank economists, to crap all over these policies (all but assuring their popular support). In fact, in a perfect world, a number of former colleagues in your respective economics departments would come forward of their own volition (not being in on the plan) to denounce your theories as unhinged, lunatic and dangerous.
Of course, once you’re elected, you’ll toss the whole damned paltform in the garbage can and implement good policies. Sure, that’s dishonest, but apart from the “good policies” part, that’s really the modus operendi of your typical successful Canadian political party.
“Canada’s current negotiations for access to the European Union market may be compromised by the status quo dairy system.”
Add that Canada’s dairy system has already locked us out of the Trans-Pacfic Partnership trade talks, which could wind up being at least as important as the ones with the EU.
I would vote for your party.
“With tongue in cheek–Are you sure the Economists Party of Canada would get enough votes to elect even one MP?”
Heck, I’d be surprised if it’d get enough votes to get our deposit back. But we’d get more votes than the Marxist-Leninist and Communists combined.
Heck, I’d be surprised if it’d [Economists Party of Canada] get enough votes to get our deposit back. But we’d get more votes than the Marxist-Leninist and Communists combined.
I thought the latter was a faction of the former.
IIRC, the Marxist-Leninists are an off-shoot of the Marxists after the Sino-Soviet split of the 1950s (now don’t ask me which one took what side!)
Errr.. Marxist-Leninists are an off-shoot of the Communists.
I was speaking of the Marxist-Leninist and Communists being a faction of the Economists Party.
Ahh… right.
But this ‘split’ idea has me thinking: How long would it be before the Economists Party split into Freshwater and Saltwater factions?
Not long:
Pro potash- Salt Anti-potash- Fresh
Aside: You do know that at one time, all the world’s water was fresh. It was only by flushing the salts out through rivers into the oceans where it had nowhere else to go (and was further concentrated through evaporation) that the two were differentiated.
~pure vs ionically challenged.
Seignorage by private banks is an unnatural monopoly worth several hundred billion dollars. It is supported principally by deposit insurance. End it.
Yeah, I know. The capitalist world as we know it would come crashing down in flames so cataclysmic that… But, seriously. There are alternatives. Electronic expansion of M0 via extension by the Bank of Canada of the payment system to all citizens is a good start. It wasn’t technologically possible when the current system was conceived. Now, it’s trivial. If the banks need some help to wean themselves off the public teat, CMHC could buy some mortgages that they’re already guaranteeing anyways, at least while the system adapts. An unsubsidized (deleveraged), free market for credit is also a great place to start if we want to reduce the unnatural instability of the financial system. Expansion of M0 would also go a long way towards eliminating federal debt.
Secondly, a carbon tax is a no-brainer. But so is land tax. Ricardo knew it was 100% efficient. So did Henry George. Why have the rest of us forgotten this? Canadians are carrying $1Tn worth residential mortgages. A big chunk of that is land value. If we collected the full amount of those rents as taxes we would be paying them to ourselves and not to the banks.