Questions for Lefties

Canadian Prime Minister Stephen Harper was at the World Economic Forum in Davos this past week. In his adresses to world leaders and dignitaries he raised the issue of fiscal irresponsibility , how Canada avoided it and how Canada would continue progressing on the road of virtuous fiscal behaviour and macro-prudential conservatism. Now the prescription from the Prime Minister, although quite vague, are raising howls from the opposition. Much of the fiscal hawkishness involves a plethora of social and political policies repressing much of the Left’s past and present grievances, let’s spend a few moments to examine them.

The bulk of Harper’s ideas revolved around cubing employment at the federal level, curbing transferes to other levels of government and curbing of transfer payments to household and individuals. In the United States these last payments are called entitlement program spendings a name I find quite appropriate.

When it comes to employment and compensation of federal employees, Big Union is the loudest critic. So called experts from such groups as the Canadian Centre for Policy Alternatives (CCPA) call public sector unions the last pillar of the Canadian middle class following the decline of the manufacturing sector. They believe the Conservative Government’s call for austerity is a direct assault on the Canadian middle class. One of the reasons I believe this claim is preposterous is because these syndicated public sector unions aren’t part of the middle class. Not only is their compensation with benefits estimated to be ~40% above similar private sector jobs, they possess job security! a concept foreign to most canadians. In Canada there is a two-tiered employment system public versus private. Such a situation has led to the Spring Revolution in the Middle-East, advocacy from the CCPA is shameful in light of the lip service they pay to their quest for greater equality. The worst part is the total ignorance such special interest show to the paradox of a two-tiered system in which the less well-off private workers pay for the benefits enjoyed by the upper worker class in public servicedom. In Europe historians called these circumstances serfdom in the Middle Ages, 500 years later nothing is learned seemingly. When it comes to employment levels a serious discussion is needed. The point of public service is to offer services to the populace which could not be offered in the private sector and necessary to the general social welfare. A general assumption is these services should be offered as effectively and efficiently as possible. The idea that employment levels should be increased for the sack of preserving the middle class is social engineering, that’s not part of the mandate, for the left to try and squeeze it into the fabric of government through labour unions and labour laws is dishonest and mischievous by method… Get a mandate from the people before you increase the cost of government and do it honestly not holding back on the shortcomings of the scheme if it’s really what you want to orchestrate. The costs of a single civil servant is huge with already close to 150 Billion invested in the Canadian Pension Plan Investment Board and an estimated 250 Billion unfunded liability, that comes out to roughly a third of yearly output just to cover the pension needs of less than 1% of the population. All this to say government is the least efficient component of the Canadian economy. That says nothing of the relative efficiency compared to other countries, however the failure of government in other countries sounds like a bad barometer for comparison in ours.

The second thing demanded by the left is an increase in the scope of the welfare state, routinely derided as the nanny state by the right wing press. This request commonly takes the form of the preservation of one-tiered universal healthcare, expansion of transfer to household programs such as unemployment insurance – UI – (now called employment insurance in Canada), parental leave programs and last but not least mandated retirement ages with garanteed federally disbursed pensions. Now these programs are all well and danddy but not a single one is adequately funded. Morever every single one creates economically distortive moral hazards. Only three countries have single tier medicine: Canada, Cuba and North Korea. Do we really want to be in this club, where one’s healthcare is being subsidized by cheap Venezuelan oil and the other is in constant famine even after massive food aid from its neighbours. When it comes to UI its name is a lie. Whereas insurance is commonly defined as risk pooling backed by premium contributed investment funds. Canada hasn’t put money aside for insurance premium payouts since the Prime Minister Paul Martin raped those coffers to help pay down the deficit in the 90s. The obvious drawback of mandated participation in such unemployment insurance schemes is it tempts workers away from finding new jobs when layed off. Textbook moral hazard. One of the causes of prolonged unemployment in the US right now is the extension of unemployment benefits. No wonder their economy is swimming in a sea of slack. Parental leave programs shift the cost of child rearing partially to those who do not wish to have kids, a little unfair to say the least. We all know someone who complains about working who is tired and counts down the days till he can get his pension check from nanny government, talk about creating incentives to get people out of the labour force, shifting the cost of that retirement to others who may be a little less lazy and de-motivated. That is without counting that the babyboom generation which lavishly entitled itself to these programs didn’t even bother to have enough kids to pay the taxes necessary to see them through. The only solution will have to be a reduction in our generation’s living standard to pay for the entitlements of another generation we had no voice in determining.

Is this really the lefts prescription to alleviate the ailments of today’s society, shifting the burden from one generation to the next? I would like to ask the left: Dontt you believe in the evil of intertemporal inequality?Well that’s a little simplistic, because advocacies on the left have a number of solutions to deal with the economic and budgetary fallout caused by their wish list. Suggestion number one would be to tax the rich, idea number two tax corporations and finally tax imports! There are a few issues here in need of serious tackling. Firstly if you don’t know what a Larger Curve is go look it up in Wikipedia. Increasing the tax on the wealthy never really raises all that much revenu especially in an environment of capital mobility and tax jurisdiction arbitration possibilities ad infinitam. Secondly a progressive tax system isn’t fair or helpful as economic theory 102 will tell you, you make proportional profit or personal gain from the amount of welfare you bestow upon society. Taxing corporations is equally distortive if not much more. It represents a double taxation of income and worst compounds the issue of insolvent retirement schemes. As taxes reduce the valuation of companies which serves as the basis of all pension plans the Left cherishes so. Lastly when attempting to do more than pay lip service to reducing inequality between the wealthy and the poor import taxes are the last things that should be on your mind. Sure you creates some jobs that just might go to an otherwise disadvantaged person but than you just kick the remaining disadvantaged in the teeth with higher costs for everyday goods. A policy that increases wealth for some but reduces living standards  for others only increases wealth disparities don’t you think?

What I’m actually asking people on the left is if they actually have any new ideas to promote equality and the middle class? The Left’s policy proposals are dated from a time when international competition only existed between relatively equal states. Globalisation means factor price equalization! especially in the labour market. Does the Left actually have any plans for the future as opposed to plans promoting returning to the past? Please be my guest and leave comments and rebuttals!

In my next post I will actually propose my on macro policies to promote wealth and its distribution!

P.S. by “my own” I really mean those I’ve discovered laying around the place and rippe for intellectual picking and sharing.