Category: Economics

Matters of money

Beacon op-ed on climate

Cheryl McNamara wrote a good op-ed on climate change for The Calgary Beacon. She does a good job of making the economic case for action:

Either lock into an insecure high-carbon system, or legislate a mechanism that sends a clear market signal to nourish an industry poised to surge, bring new life back to our ailing manufacturing sector, create an abundance of quality jobs, and create healthier communities.

Change is difficult. But not when it generates great benefits. By putting a price on carbon that increases annually and giving the proceeds back to citizens to stimulate the economy we can develop a sustainable society for our kids and grandkids. Isn’t that what true conservatism is all about?

Carbon pricing is a policy that we should have implemented decades ago to kick off a smooth transition to a low-carbon economy. The earlier we get started, the less chance that transition will cost, the less infrastructure we will need to scrap prematurely, and the lower the odds that the world will suffer from dangerous climate change.

McNamara is the leader of the Toronto chapter of the Citizens Climate Lobby. It’s a group that has sound strategies and seems to be making a difference through political advocacy, intelligent interaction with the media, and direct communication with politicians.

If you have some time to spare and a desire to be part of the solution on climate change, CCL is a good group to get involved with. They have introductory conference calls frequently.

Unproductive investments that harm the world

Since the 2008 credit crunch, the governments of the world have been obsessed with economic conditions: trying to find ways to increase growth, improve the stability of the financial system, and cut unemployment. All other societal projects have taken a back seat. Given reasonable concerns about the economic future of the world, it seems like common sense to say that governments and societies should be investing their wealth and effort into things that will yield a beneficial return in the future. Unfortunately, that does not seem to be the course Canada is following. We are making big investments in things that are bad for our own economic health, and even worse for the world at large.

Take the F-35 stealth fighter jets. They have no conceivable use. Canada is not going to war with any country that is capable of shooting down lesser jets, at least at any time in the foreseeable future. In the longer term, the jets still look useless, as it is increasingly clear that the age of manned combat aircraft is ending. Canada is spending tens of billions of dollars on weapons we do not need now, and which will probably be obsolete long before they go out of service. We should just skip this generation of killing machines, and perhaps invest later if some credible threat to Canadian security actually emerges.

The new crime bill is an even worse example of putting good money to counterproductive uses. There is no crime epidemic that requires a government response. There is no evidence that imprisoning more people will reduce crime below the already-low level where it is now. Indeed, the only things we can be sure about is that imprisoning people for longer will do more to wreck their chances of living a productive life, while harming their families and communities.

The oil sands may be the biggest example of Canada’s misplaced priorities. Look at the big picture. There are two possible futures for the world:

  • A world where we do nothing about climate change, and warming of well over 4˚C takes place
  • A world where we wake up and begin the process of aggressively phasing out fossil fuels

The first possibility is a suicide pact. We would probably be condemning the world to radically destabilizing climate change, with sea level rise of many metres, dramatic changes in precipitation patterns, and enormous human suffering as a consequence. In the second possibility, there is no place for an industry like the oil sands. Indeed, unconventional oil and gas production serves only to lengthen humanity’s dependence on fossil fuels. The smart investment is figuring out how to live on carbon-neutral sources of energy. Spending billions of dollars on an industry that will either be dismantled soon or will persist as a witness to a burning planet doesn’t make either economic or moral sense.

Even if Canada never wakes up and takes the obligation to address climate change seriously, it is quite possible that the rest of the world will do so. The people who say that oil sands extraction are inevitable are the same people who said that the Keystone XL pipeline was a sure thing. As people become aware of the dangers of climate change and the ethical imperatives that flow from them, they will be less and less inclined to invest in the suicidal fossil fuel industry, and less and less willing to buy its lethal products. The billions Canada is investing in fossil fuel infrastructure may end up rusting unused. Leaving the Kyoto Protocol is just one indication that Canada is out of step with the international community, and risks becoming an international pariah based on its selfish focus on fossil fuel profits.

There are so many things we could be spending money more usefully on. We could be investing in the skills and training of the Canadian workforce. That would be a sensible recognition of how global patterns of trade and production continue to change. We could be investing in sustainable infrastructure: buildings, transport links, power generation and storage facilities, and an agricultural system that can function without fossil fuels. We could be investing in assistance to those who are suffering from extreme poverty, both in Canada and around the world, as well as those who struggle with serious mental illnesses.

Canada can make smarter choices, not to mention choices that cause less needless harm. We just need to think a bit more about what sort of world we want for our children and examine whether our current priorities are aligned well with those goals.

Encouraging re-gifting

I don’t think it is appropriate that our society has a general stigma against ‘re-gifting‘: the practice of giving away something that was itself received as a gift.

In many ways, re-gifting is a rational response to the fundamental problem of gift-giving, namely that gift-givers are not necessarily able to pick things that gift-recipients will want. Very often, the cost to the giver will substantially exceed the benefit to the recipient. For example, you might get an inferior version of something you already own, and which nobody needs more than one of. There are also clothes that don’t fit or do not fit your style, books you will never read, foods you do not enjoy, and so on.

Allowing the recipient to give the gift to somebody who may like it more reduces the odds that it will sit unused and unappreciated in a corner or a closet somewhere.

I wonder if there is any concrete way in which the tolerance for re-gifting within society can be increased. Perhaps there should be a designated day, sometime after Christmas, on which people are encouraged to re-gift. In particular, they should be encouraged to give away anything that has little or no value to them, but which they know will be valued by somebody else.

For the record, as a utilitarian I encourage people to re-gift unwanted things that I have given to them at various times. I can’t promise that I won’t be a bit disappointed to learn that I have chosen something for you that has no value, but I will be glad at least that it is going to somebody who will have a use for it.

Boycott Canada over climate?

As Canada’s statement at the UNFCCC conference in Durban demonstrates, Canada’s political system is currently working for those groups that want Canadian greenhouse gas pollution to remain unlimited, ignoring the costs it imposes on other people around the world. Contrary to the slogan of market-based liberal environmentalism, the slogan of the current approach could be interpreted as: “Keep externalities external”.

Dealing with climate change requires a more productive attitude.

How, then, can Canada’s position be changed so as to be compatible with avoiding dangerous or catastrophic climate change? Right now, the political debate is being dominated by groups that see reducing greenhouse gas pollution as harmful to their business interests – particularly the oil and gas industry. If the rest of the world wants to put pressure on Canada to stop being such an environmental laggard, they may need to convince the rest of Canadian business that it doesn’t pay to be an environmental pariah.

What sort of boycott, I wonder, might be able to achieve that outcome? Something that would catch the attention of the majority of Canadian businesses that do not depend fundamentally on increasing pollution for their continued growth. General economic sanctions might be reasonable: increased tariffs on all Canadian exports, along with a reduced willingness to do trade deals, for as long as Canada refuses to do its fair share in dealing with climate change. After all, the flaws in Kyoto are not a license for inaction.

It would be very reasonable for states with domestic carbon pricing schemes to impose carbon tariffs on states like Canada that do not. As long as the tariff level for emissions embedded in imports is set at the same level as the domestic carbon price, such a policy would be compatible with World Trade Organization rules.

What do other people think?

Designated whistleblowers on corporate boards

In my continuing campaign to come up with specific policy ideas for the ‘Occupy’ movement people, I had another idea: designated whistleblowers on corporate boards of directors.

Basically, they would be people who would need to attend all board meetings and who would have a specific obligation to immediately report any activity that is either illegal or a possible threat to the financial system as a whole.

They could be company insiders who are specifically charged with this role, with rewards for doing it well and penalties for doing it badly. Alternatively, they could be civil servants who are knowledgeable about the firm’s line of work.

Arguably, this would just lead to nefarious activities being orchestrated in venues other than board meetings. Even if some of that happens, it could still be useful. At the very least, it would obligate nefarious board members intent on breaking the law to arrange ways to trick the designated whistleblower, which would interfere with some kinds of bad behaviour. Also, having a designated whistleblower constantly present would be a reminder to others that you are allowed to point out unethical behaviour when it is being practiced by your employer.

Not applying to Oxford

In the last few days, I have told a few stories about my time with the Oxford University Walking Club: energetic mountain climbers who are very talented and excellent company. Expeditions with the club was one of the most enjoyable things during my two years in England.

In many ways, it would be appealing to go back to Oxford for my doctorate. I am sure I would appreciate it more now – after four years of work – than I did when I went in after my undergrad degree, back in 2005. There is much to appreciate: the parks, the libraries, and most wonderfully the conversations with knowledgeable and intelligent people of all disciplines.

The major reason I am not applying to Oxford is just finances. Degrees there are relatively quick (you can do an M.Phil and D.Phil in about four years), but it is usually up to students to fund themselves. Some get big scholarships like the Rhodes, but many finance it with a combination of their own savings, familial help, and debt. By contrast, the better American schools are very likely to fund you as a doctoral student.

I was looking at the statistics for Duke University, for example. They fund 95% of their doctoral students. A North American PhD can easily run for five years or more. It would be asking a lot for people to be self-funding as well, especially when the research and teaching provided by doctoral students are integral to the work of universities. The deal in the US seems to be that if you get into a decent school, they can afford to fund you. Oxford University, along with all the colleges, have an endowment of about £3.3 billion (US$5.1 billion). Yale University, by contrast, has an endowment of US$19.4 billion, while Harvard has US$32.0 billion.

Money issues aside, it should be stressed that Oxford is a charming and unique place. There is nowhere else where you can live within the history of the oldest university in the English-speaking world, now more than 900 years old. There is also a marvellous mixture of people there, and it is one of the best places anywhere for turning over new ideas. It’s unfortunate that I am unable to visit more often. Alas, avoiding flying makes that hard.

Kyoto has problems, but Canada must still act

On BuryCoal, I have written a quick post on why people are wrong when they argue that the problems with the Kyoto Protocol mean that Canada should not participate meaningfully and in good faith in ongoing international climate negotiations. The failure of Kyoto to curb the rise in global emissions strengthens rather than diminishes the case for coordinated international action.

Mandatory minimums and the crime bill

Depressingly, it looks like this new crime legislation will become law in Canada – bringing with it the certainty of substantial new prison costs and little in the way of likely benefits.

One aspect that seems especially objectionable is mandatory minimum sentences. I think it makes a lot of sense for a judge who knows the law and the circumstances of a case to decide what punishment is fitting. Binding the hands of a judge by forbidding sentences of less than a set amount seems like a policy can that only produce injustice. Surely, there are cases where a literal interpretation of the law would apply to someone, but where it would be unjust to punish the guilty party severely. Letting judges keep their discretion is an appropriate reflection of the complexity of the world. I also question whether the supposed problem of excessively lenient sentencing – the basis for establishing minimums – actually exists.

I also think it is counterproductive and unjust to tighten the laws on illegal drugs. Most of the harm done by drugs arises precisely because they are illegal. It would be far better to legalize, regulate, and provide treatment. That is especially true of exceptionally benign drugs like marijuana – which is probably less damaging to the people who use it than most prescription antidepressants. Besides, it is up to properly informed individuals to decide what they want to put into their bodies – not a moralizing state that has bought into the morally bankrupt and ineffective ‘War on Drugs’ mentality.

Finally, I strongly object to the lack of personal security for inmates in prison. Even criminals deserve to have their human rights protected by the state.

Tax wealth instead of income?

Here’s a practical policy idea that might serve the aims of the ‘Occupy’ movement: try to transition from income taxes to wealth taxes. Instead of limiting how much money people can make in a year – try to limit how enormous a fortune they can actually amass.

If you taxed people a percentage of their total wealth each year, it would massively raise the tax burdens for the richest individuals, without having a large effect on those who are just doing the basics of saving for retirement. Such a policy would punish the ‘idle rich’ who inherit some sort of windfall, and who live on it for the rest of their lives. Arguably, it would do less than income taxes to diminish the efforts of people whose efforts genuinely produce a lot of value. True entrepreneurs and innovators could pay a small wealth tax and keep coming out ahead; only those who are just sitting on a pile of money would see their assets shrinking substantially.

Steve Jobs may have produced spinoff benefits for the people who work at his company and use his products; Smaug the dragon did not, sitting alone on his massive pile of gold. (Though he also stole the gold, which may be a bigger strike against him than simply having it. He didn’t earn it though voluntary transactions that were to the benefit of both parties.)

Imagine you set a wealth tax of 0.1% per year. Someone who has saved $1,000,000 for retirement would pay $1,000 per year in tax on the wealth. Carlos Slim, who is currently the richest person in the world, would pay about $74 million per year in wealth tax – $1 million in tax for every $1 billion in the bank. You could also make the tax progressive: set the rate for the first $1,000,000 at 0.1% and set the rate for much higher levels of wealth at higher percentage values. Maybe Mr. Slim should pay 10% per year on that gigantic fortune. That would be $7.4 billion for the Mexican treasury, taken from a pile that is already far too large to be spent by a single person, except perhaps in the most lavish ways imaginable.

I am not sure if the policy is a good idea, but it is the sort of thing a movement could actually push, as opposed to just expressing a general ill-focused agenda in favour of redistribution of wealth. Taxing wealth might even be economically efficient, if it kept people from maintaining vast unproductive piles of wealth. It is quite likely to be efficient from a utilitarian standpoint. People who rely on government spending – in the form of food stamps, unemployment benefits, and the like – value those dollars far more than Mr. Slim does. For Mr. Slim, they might mean the difference between being able to buy 15% of some big company and being able to buy 16%. For the people dependent on government benefits, it might mean the difference between feeding their children well or badly.

One exception to the policy: people who perform a sufficiently great public service should earn a basic state pension for life, not subject to any taxes. To double down on Tolkien analogies – if you carry the One Ring to Mount Doom, you get to retire afterward without worrying about taxes.

I am curious to know what readers think about the idea.