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 
Bob Smith: You seem to be asking what the correct scope of food sovereignty should be. The obvious answer: the local sovereign polity that controls the currency and other instruments. To me, the point of food sovereignty is to reconnect our economic arrangements with collective democratic decision-making. In order to do that, we need to reduce the levers by which forces hostile to economic democracy can undercut it—one of these is making sure that the population within the polity has a food supply that cannot be affected by international trade.
The point of the supply management is the supply management itself. We don’t want the population growing dependent on cheaper foreign products not produced under the same labour and environmental conditions—ie, the use of cheaper labour and environmental regulations as a comparative “advantage”. Then they would begin to see the subsidy to the local farmer as redundant. Subsidies to local farmers and supply management+tariffs are not equivalent, we actually do want to connect local farmers to local consumers.
That’s not because I suffer from a local food fetish. It’s merely a necessary part of restoring the kind of sovereignty required for a democratic economy.
K:
Seignorage by private banks is an unnatural monopoly worth several hundred billion dollars. It is supported principally by deposit insurance. End it.
…
Electronic expansion of M0 via extension by the Bank of Canada of the payment system to all citizens is a good start.
Expansion of M0 by the state bank is not an original idea.
Substitute GOSBANK for the BoC, minus the electronic part, and you’ll get the USSR circa 1920-1990. One can hardly claim that the project was a resounding success story. Or can one ?
vjk: Gosbank was a central provider of credit, the antithesis of a free market for credit. I am proposing that private banks should compete for wholesale funding in the open market, unfettered by government interference; that the public shouldn’t be on the hook for their liabilities, either in principle or in practice; and that it ought to be our right to keep Canadian dollars safe from credit risk even if it’s more than $100K.
What (economist-promoted) economic globalization hath wrought is that it has crippled our ability to decide democratically on the economic common good. As such, it has effectively reduced political decision-making to trivia. That is ultimately the importance of preserving supply management systems in the place of a true commitment to measured protectionism that economists despise.
I remember at Yves Smith’s place, someone (can’t find the post) posited a sort of impossibility theorem. You can have two of these three things, but not all three: economic globalization, national sovereignty, and democracy. We are presently in the world in which we have economic globalization and national sovereignty; but it has meant that the ability of the people to collective decision making on their economic interest has been considerably stymied. The world that ideally should exist is one in which globalization and democracy reigns, but it requires us to give up national sovereignty (to global elected bodies or other forms of decision-making), and for various reasons we aren’t ready to give it up. Consequently, if there’s any political party we need, it’s one that focuses on democracy and national economic sovereignty, at the expense of free trade and capital movement.
Democratic control of our food? Sorry, problematic. At its worst I see that as an extension of what it currently is in some cases – supply managed foods like dairy and restricted trade goods like wine and beer – as an exercise in protection to cater to powerful lobby groups, for their benefit not ours. At worst it becomes the tyranny of somebodies notion of whats good for you to eat or drink. I don’t want the crowd deciding what I eat.
Well, you have a choice between that and being beholden to food suppliers over which you have no oversight or control, and food prices for the poor, etc, being subject to the vagaries of an international market with pretty much zero leverage to insist on equity and foresight. Essentially, the most fundamental aspect of human well-being taken out of democratic control into undemocratic control.
The crowd will in one way or another decide what you have available to eat within the bounds of biology/climate/geology. The question is, did you get a vote? This is true for a lot of other things.
Food sovereignty is meaningless from a security standpoint for luxuries like dairy, meat, wine, etc. We produce more than enough calories in Canada to feed ourselves in a pinch from grain production alone.
Yes, if you want to get scurvy and osteoporosis.
K:
Electronic expansion of M0 via extension by the Bank of Canada of the payment system to all citizens is a good start.
and
unfettered by government interference
Since the BoC == government inasmuch as the Feds == government, maybe even more so, I find the two quotes above contradictory.
Also, as far as I understood your proposal, you suggest that the commercial bank credit creation function should be excised: “Seignorage … End it”.
Is that what you are in fact proposing ?
Further:
I am proposing that private banks should compete for wholesale funding in the open market
But, that’s exactly what the commercial banks are doing now.
I am confused.
“What (economist-promoted) economic globalization hath wrought is that it has crippled our ability to decide democratically on the economic common good. As such, it has effectively reduced political decision-making to trivia. That is ultimately the importance of preserving supply management systems in the place of a true commitment to measured protectionism that economists despise”
How has globalization crippled our ability to make democratic decision on the economic common good? Globalization isn’t a force imposed upon us, it’s a process we’ve decided (democratically, as it turns out) to embrace. If we wanted to we could reject globalization and pursue a policy of autarky. Mind you, the latter option would be a REALLY, REALLY, REALLY bad idea, and would have significant adverse consequences, but the existence of adverse consequences doesn’t mean we can’t choose that path (it does mean we SHOULDN’t choose that path).
The same is true, on a lesser scale with supply management. Globalization doesn’t prevent us from keeping supply management, if we want to, but we have to recognize that there are costs associated with maintaining the supply management system. The ability to import food from outside countries (made possible by globalization) raises the opportunity cost of maintaining the supply management system (because (a) ordinary Canadian pay more than they have to for basic food supplies – a shamefully regressive form of implicit taxation – and (b)the maintenance of the supply management system hinders our ability to negotiate trade concessions from our trading partners). If Canadians decide that the cost of preserving that system outweights the benefits of maintaining it (my own view) that is a democratic decision, not one imposed upon us by globalization (much less economists).
“Well, you have a choice between that and being beholden to food suppliers over which you have no oversight or control, and food prices for the poor, etc, being subject to the vagaries of an international market with pretty much zero leverage to insist on equity and foresight.”
Curious, you don’t want to subject the poor to the POSSIBILITY of high food prices caused by the “vagaries of an international market” (although, over the past century and a half, the international food market has, if anything, driven down the real price of food by allowing consumers to buy food products from the most efficient producers), but you do want to subject the poor to the CERTAINTY of high food prices caused by trade barriers and supply management? That’s sort of odd reasoning, isn’t it?
MM: some profound thoughts from a commenter April 23rd:
Economists, in my opinion, should be advocating opening up protected industries, providing incentives and brow beating of industry to invest in R&D and investments in productivity training and equipment, not constantly arguing for lower corporate taxes (using some contestable points) as the chosen path for Canada’s continued and future prosperity, which appears to be the case with some. It starts to appear to outsiders as purely ideology.
http://tinyurl.com/2dlkd6a
🙂
JvfM: Ha! I don’t see it being an either-or situation. In fact, lowering corporate income taxes could be a way to make a reduction in protectionism more palatable to Canadian business. It’s beer and pizza!
Cake, and eat it too!
Oops, I think I already said that.
vjk: About two thirds of the liabilities of Canadian banks is deposits, of which about $450Bn is chequable (0% interest) and $750Bn savings (low interest). This money is directly created by their lending activities. So most of their funding costs are vastly below the rate that they would be paying if they had to finance their lending from bond issuance at the risky free market rate rather than from government guaranteed money. M1 in particular represents a very large permanent endowment to the banks as a whole.
What I’m proposing is that everyone (individuals and businesses) should have a choice whether they want to keep their money on deposit at the Bank of Canada (just like the private banks) or on deposit at the private banks themselves. And I don’t think that providing a robust medium of exchange constitutes government interference in markets. Once we give people a choice about where to put their money, we no longer have to guarantee private bank money (M1 and M2). To the extent that some people would move their money to the BOC, the banks would have to raise new funds (from issuing bonds, BAs, equity, whatever) or sell assets (which is why I was proposing that, if necessary, as a temporary measure, CMHC could buy mortgages that it already guarantees anyways).
The banks should then be unfettered by government interference since there is no reason to regulate them when we don’t guarantee their liabilities, and the money supply is no longer critically dependent on them. All in all, less subsidy, less regulation, more freedom, more efficiency.
“The banks should then be unfettered by government interference since there is no reason to regulate them when we don’t guarantee their liabilities, and the money supply is no longer critically dependent on them.”
Would it really work that way? I’m not a trained economist, but I think people would still demand regulation. Maybe they would be wrong.
K:
Once we give people a choice about where to put their money, we no longer have to guarantee private bank money (M1 and M2).
What you suggest is similar to various “narrow banking” proposals.
What is interesting people already have this option of putting money elsewhere, without sponsoring M1 and M2 production by evil commercial banks. For example, Vanguard Treasury MMMF that invests in short-term US government securities(the US) is one of such options. They offer check-writing privileges and the arrangement is pretty close to “narrow banking” ideas, perhaps not as well developed, but it is there for those who want to use it.
I think it would be disastrous for an Economists Party to actually run the country because that would give economists way too many degrees of freedom to work with and they would never be able to make any decisions. I think the Economists Party would be great, though, as a junior partner in a coalition.
Bliktheterrible: I hope it would work that way. But to really make it work you also need to get rid of officially sanctioned rating agencies. As long as investors and their representatives are removed from the analysis of their own investment decisions, you are going to have confidence crises. So here is another proposal for the Economist Party: decertify the rating agencies. They serve issuers only and they have wreaked tremendous harm.
vjk: You’re right that people have “narrow banking” options. But for the most part, they are not incentivized to use them. It’s the worst banks that offer the highest deposit rates, so if you’re under the insurance limit the incentive is perverse (see S&L crisis). And staying under the limit is not that hard it turns out. My bank, for example, has a dizzying array of options (especially for a couple): separate accounts, joint accounts, and a variety of separately insured subsidiaries. You could probably insure $1M at one institution. The core of the problem is the massive perverse incentives that result from deposit insurance (both for banks and depositors) and the implicit insurance that comes with subjecting the industry to capital rules.
“I think it would be disastrous for an Economists Party to actually run the country because that would give economists way too many degrees of freedom to work with and they would never be able to make any decisions.”
Maybe if we limited membership to one-armed economists?
Isn’t that a null set?
Mike, the thread of discussion seems to have gone way past supply management, but I’d flag that CCPA recently released a report looking a climate change and BC’s food supply:
http://www.policyalternatives.ca/everybitecounts
We show data for different types of food and how self-reliant BC is for each. The supply managed areas are the ones that are close to 100%, so if food security is a policy objective (and I think it should be), then supply management should be considered. Ditto on farmer incomes.
The point is that economists assume a perfectly functioning market and that any intervention by government must be welfare reducing. But agriculture and food are super-complicated industries, and are full of market failures, from environmental pollutants and greenhouse gas emissions, to huge market concentration in most segments of the industry, and exteralities in terms of public health, worker safety, and so forth. So over-simplified analyses do not do us a favour, especially when there are multiple policy objectives; they just lead to knee-jerk arguments like the one against supply management.
But it is also true that most economists, by steeping their careers in a neoclassical fantasy world, “do not get it”. I have run-down over here:
I saw that. On a personal level I find your comments funny, because my entire academic career (what little of it there is) is in studying the issues (externalities, imperfect competition) that you say economists ignore!
http://www.ivey.uwo.ca/faculty/Mike_Moffatt.htm
In general, I’d find these criticisms a lot more persuasive if people would actually bother creating models with imperfect information, incomplete markets, externalities and seeing what the outcomes are, rather than just foot-stomping and exclamations of “you dummies don’t understand!”
“Isn’t that a null set?”
Maybe a targetted subsidy for chainsaws could resolve that problem.
“The supply managed areas are the ones that are close to 100%”,
Isn’t that a sort of “sun rises in the east” kinda conclusion? Of course, we’ll encourage domestic production of foodstuffs (and prop up farmer’s incomes) if we make consumers pay twice the market price for those products.
Of course, I’d be curious how the CCPA squares “economic and social justice” (the purported foundational principals of the CCPA) with a seemingly regressive policy of raising (doubling) the price of basic groceries.
I think the point is that those models collapse when you add more than one market imperfection, though I think the Post-Keynesians have done a decent job of trying to build models on alternative assumptions. Is it better to have a flawed model that says something? Models can shed light by simplifying, but in an area as complicated as agriculture and food we should be careful about what conclusions we can draw.
Bob, you raise an important point. It is not obvious that food prices would go up, especially since the typical farmer only gets a small share of the sales price due to middlemen in our industrialized agriculture system. We are advocating for alternative distribution networks that have the potential for much greater economies of scale. But there is good case to made that they will rise. If you check out the paper we argue that hunger is mostly about a lack of income, which means living wages in the labour market and stronger income transfers (guaranteed income), both of which should be linked to the cost of food.
Furthermore, the cheaper prices that globalization has brought to food and other tradeable goods has hidden, unaccounted-for costs for which we will pay in the future. And by costs, I do not necessarily mean things in terms of money, but in terms of constraints that fall outside the scope of what economists normally seem to consider. For one thing, it has resulted a social and economic organisation that is not resilient to environmental changes, resource depletion, and so on. When food is no longer cheap (which will happen), the dislocation will be awful. A principled application of food sovereignty inherently promotes that kind of resilience, where long-term issues can be brought back into the realm of a less trivial politics.
In the United States, there is a large and growing underclass of people who can indeed buy cheap food both domestic and foreign, and other cheap goods, but suffer both from ill-health and the depletion of productive employment as the number of occupations that pay a wage that allows for better food decreases, as a necessary result of the globalization that brought the cheap food. Not everyone can or should go into finance…
Mike Moffatt can complain that people who criticize the models of economists should build their own. On whose terms, with whose concepts? Those of economists? Many of us believe that the concepts that underlie mainstream economics are not sufficiently developed to support a science that can be used responsibly in policy recommendations. I’m not convinced that there can even be such a science. How do you quantify the relationship between political rights and wealth distribution?
Insofar as the transnational capitalist class is completely disinclined towards the kinds of direct wealth transfers that left-liberal-ish/centrist economists think are welfare-increasing, unfortunately the position of anyone who wants to prevent the recurrent immiseration of what middle class managed to claw its way up after WWII must be highly inclined to autarky. If capital won’t cooperate, it has to be imprisoned. And we’re seeing, what with austerity in Europe, etc, that it will not cooperate. Talk of economic management through direct wealth transfer is hollow in that instance; the point of supply management is to manage supply.
P.S.
“Benefits in cash not kind.”
My answer to that is NOT ALWAYS. Why? Because, some adults aren’t adult. For instance if you give families money to look after kids, in some families, adicted or otherwise irresponsible adults, will steal some of it.
As regards agricultural subsidies, I’m sort of in two minds about that. I think that the world needs an oversupply (and stockpiles) of food, and agricultural subsidies sort of ensured that. I don’t think the market left to itself will ensure that (power blackouts anyone). The market always tends to maximise efficiency, sometimes at the expense of resiliance (because nobody pays for the resiliance). The recent volatility of grain prices are an indication of what happens when buffers get too low. Imagine what would happen if next year there was another Krakatoa.
A policy is considered sensible if it yields a Kaldor-Hicks improvement over the most likely alternative for the bottome p% of the population affected for some 0<p≤100.
…for some p between 0 and 100.
Here’s a piece about optimal tax policy:
http://www.economist.com/node/17461040?story_id=17461040
cash transfers:
http://www.newsweek.com/2010/10/25/the-new-fix-for-poverty-give-cash-to-the-poor.html
End fossil fuel subsidies.
http://www.economist.com/blogs/newsbook/2010/11/fossil-fuel_subsidies