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Making Canada Relevant Again- The Economic Super-Thread

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David Akin, one of he few journalists I singled out as being an exception to the unprofessional rule, provides a very useful column on an important, albeit dull as dishwater, topic ~ the national debt. It is reproduced under the Fair Dealing provisions of the Copyright Act from his blog on canoe.ca:

http://blogs.canoe.ca/davidakin/politics/where-is-the-line-between-good-debt-and-bad-debt/?utm_source=twitterfeed&utm_medium=twitter
Where is the line between good debt and bad debt?

David Akin

November 14th, 2012

A wonk-post, I’m afraid, but there are some important questions, I think, for politicians and voters at the end of it all.

In 2000-2001, the debt-to-GDP ratio was 48.3 per cent. By the time of the final Liberal budget, the one for the fiscal year that ended on March 31, 2006, the debt-to-GDP ratio was at 35%. (All the ratios and figures in this post come from the federal Finance Department’s Fiscal Reference Tables)

The debt-to-GDP fell for one of these reasons:

    + The absolute amount of debt issued by the Government of Canada falls while total economic output (GDP) stays the same.
    + The absolute amount of debt issued by the Government of Canada stays the same while GDP rises.
    + The absolute amount of debt changes at a slower rate than the rate of growth of our economy.

Usually, the debt-to-GDP ratio drops because of that last point. If our economy is growing at, say 2 per cent a year, our debt-to-GDP ratio drops if debt “grows” at, say -5% a year. That is to say, the economy was growing while debt decreased in absolute terms. Our debt-to-GDP ratio could drop if the economy grows at 3 per cent and debt grows at 1 per cent. In both these cases, the economy has grown but debt has grown at a slower pace than the economy.

Some (and perhaps many or even a majority of) economists — and I wish I could finger the ones who told me this but it’s been a long time since I’ve brought this up — argue that it is a desirable policy outcome that governments carry some sort of debt as government debt because low-risk government debt is part of a healthy and functioning capital market and healthy capital markets are important in order to finance economic development projects which in turn create jobs and prosperity. Not only that, Canada Savings Bonds are clearly among the most popular of investment products Canadians choose every year. When the government issues you a $100 Canada Savings Bond, that’s $100 in debt that we are all taking on through our federal government.

So, I would argue there is widespread agreement that it is an undesirable policy goal for a federal government in Canada to completely wipe the federal debt out, i.e to bring the debt-to-GDP ratio down to zero.

But on the other hand, when our federal debt-to-GDP ratio was peaking in the mid 1990s at around 68%, there seemed to be widespread agreement that the government had taken on too much debt and that this was an undesirable policy outcome. For one thing, just the interest on that debt was equivalent to 6.1% of GDP in 1995-1996.

So what is the optimal federal debt-to-GDP ratio? Where is the line between good debt and bad debt? Clearly, it’s somewhere between 0% and 68%

This is not just an academic question but one with very important consequences for politics and federal fiscal policy.

In the 2008-2009, the debt-to-GDP ratio was 28.9 per cent, the lowest it had been since 1979-80 when it was 27.7%.  After that, and for the last three years, it has hovered around 34% as the federal government ran up deficits to pay for what it deemed were important stimulus programs needed as a counter to the global recession.

In the fall fiscal and economic update released this week by Finance Minister Jim Flaherty, there seemed to be a clear objective that the federal government ought to return to a debt-to-GDP ratio of around 28 per cent, as if that was some sort of optimal level. Here’s this line from Flaherty’s speech announcing the update:

“Through our Government’s continuing efforts to eliminate the deficit, the federal debt, measured in relation to the size of the economy, is projected to fall to 28.1 per cent in 2017–18, in line with the recent low in 2008–09. This will help ensure that Canada’s total net debt-to-GDP ratio will remain the lowest among all other G-7 countries by far.”

But, so far as I can tell, neither Minister Flaherty nor any finance department official has provided an explanation of why 28% is an optimal level. Why not 25%? What’s wrong with the current 34%? All we get from Flaherty is that having a net debt-to-GDP ratio that is lower than our G7 peers appears to be a good thing. Why? (Germany’s debt-to-GDP ratio is second best to Canada right now and their ratio is closer to 60% right now and most thing Germany’s economy is doing pretty well all things considered. Do we know something the Germans don’t?)

For example, I might, as a policy outcome, favour lower taxes. But (and I know I’m probably oversimplifying things here) a government might say that it needs to keep my taxes where they are so that it can pay down debt — and reduce the debt-to-GDP ratio possibly. This then is the key political question: Lower taxes or lower the debt? But I might argue that the debt-to-GDP ratio is fine where it is and that our economy would grow faster if you cut my taxes. And, of course, if you cut my taxes and the economy did in fact grow, than you would be lowering the debt-to-GDP ratio! (see Reason Number Two at the top of this post).

But here’s another political question: The choice is not between cutting debt and cutting taxes but cutting debt or spending that money on some other public good such as more infrastructure, helping unemployed people get jobs,etc. That, it seems to me, is one of the fundamental questions over which Conservatives, Liberals and New Democrats tend to divide themselves. All parties agree with some debt reduction; all agree with some program spending; all would favour some reduced taxes. Where they differ is getting the balance among all three of those things.

I think it safe to say that all three parties have sketched out justifications for their favourite program spending priorities and for their priorities on taxation. But while all parties think lower debt is a good thing, I am not aware of any of them spelling out just how low they want to go with this debt reduction thing or what their rationale is for debt reduction targets or rates or debt reduction.

One final note related to all of this:

Some say, well, you’ve still got to pay interest on that debt and if the government didn’t have to pay that interest (i.e if there was less absolute debt), it could spend that money on other things or reduce taxes. In the last budget year, the federal government had to pay more than $31 billion in public debt charges or interest.

That seems a lot of money but the important assumption for this discussion is that some debt and therefore some interest payment is a desirable policy outcome. And, though the current Conservative government has run up what are, in absolute terms, Canada’s largest ever budgetary deficits, the ratio of interest-to-GDP has been below 2% for the last three years. (Remember it was 6.1% during the federal government’s last big deficit crisis of the early- to mid-1990s). In fact, that $31 billion in interest paid by the feds last year was the equivalent of 1.8% of GDP.  The interest-to-GDP ratio has not been 1.8% since 1966! In other words, this is pretty much an all-time low for interest charges in relative terms.

Even more remarkably, it seems to me, is that there was $842 billion in interest-bearing debt on the government’s books last year. So Canadian taxpayers were paying about 3.6% to borrow that money. If I was paying 3.6% on my mortgage, I think I’d be pretty happy. Others might be upset at paying any amount of interest. Fair enough.

So maybe here’s another benchmark to guide our policy decisions on how much debt to issue: Rather than have a certain debt-to-gdp ratio as a desired outcome of fiscal policy, why not argue that fiscal policy and the government’s debt management framework should be geared to keep the interest-to-GDP ratio under, say, 2%?

I’m afraid I don’t have the answer to that one but I think these are worthy ones to put to our politicians:

1. How much debt should a government take on as a percentage of our economic output?

2. For those politicians that believe some amount of debt is appropriate, should we manage that debt in order to keep our interest payments at some sort of low ratio?


I am equally unsure of how much debt is enough ~ but I heard/read the same thing as Akin did and I, too, believe that some national debt is OK, if not downright desirable ~ but I'm guessing that it is somewhere between 20% and 30% of GDP: large enough to keep some credit available but small enough to not be a significant burden. In a perfect world much of that national debt, say ⅔ of it, would be held by Canadians as domestic debt so that they, Canadian holding Canadian bonds, receive most of what we pay as interest on the debt.

 
Canadian pundits Anna Maria Tremonti, and Margaret Wente dramatically lower the bar on economics with their endorsements and commentary on the book "Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else". If this is the level of economic education and discourse across a large part of our population, itr is no wonder we are having such a hard time pulling ourselves out of the economic crisis, or are still dealing with multi billion dollar debts, deficits, unfunded liabilities and personal debt.

http://opinion.financialpost.com/2012/11/15/peter-foster-the-fair-sex-goes-for-the-capitalist-jugular/

Peter Foster: The ‘fair’ sex goes for the capitalist jugular
Peter Foster | Nov 15, 2012 10:31 PM ET

Media sisterhood keeps class-warfare debate alive

Is it not of deep moral concern that figures such as Margaret Atwood and Christopher Ondaatje take more than their fair share of the Canadian literary “pie”? I must admit that I haven’t analyzed the figures — I’ll leave that to the Canadian Centre for Policy Alternatives — but I’m sure that if you look at their book sales versus those of the average Canadian author, you’ll find an enormous and shameful inequality in the “distribution” of book revenues. Similarly fretworthy is how Canadian film director James Cameron takes such a disproportionate share of Hollywood box office income. And what about Justin Bieber’s shameful “control” of music income and wealth?

Such arrant greed has been prevalent since the earliest days of capitalism, when James Watt and Matthew Boulton selfishly invented and developed the industrial steam engine. Later, “Robber Baron” Andrew Carnegie organized a great chunk of steel industry. Then Henry Ford gobbled up the automobile mass market. All these people created — shamefully — far more than their “fair share.”

Such ridiculous logic is the essence of the fashionable obsession with inequality, and resultant demonization of “the rich,” a theme that lives on in President Obama’s resolution to insist on tax hikes on those relative paupers earning more than US$250,000 as part of negotiations over the “Fiscal Cliff.”

A monument to such sloppy non-thinking is Chrystia Freeland’s book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, which comes close to qualifying as hate literature. I have already given the zero-sum mentality implicit in that subtitle the once over in this space, but feel compelled to return to her hollowed-out thesis because of its fawning treatment this week by two leading figures of the media sisterhood, Anna Maria Tremonti on CBC’s The Current, and Margaret Wente in The Globe and Mail.

On The Current Ms. Freeland delivered her tedious Marxist-inspired class-warfare message of a disappearing middle class and of “the ladder being pulled up” by the Super Rich. Ms. Tremonti threw in that people were taking to the streets in Europe. How this had anything to do with the rich rather than feckless governments wasn’t explained.

It was inevitable that the absence of women from the Super Elite would come up. Ms. Freeland explained that a “big equity tycoon” had explained to her that it was nothing to do with intelligence. It was because women “don’t go for the jugular. They do not have the killer instinct.”

Isn’t it fascinating how business metaphors often tell us far more about the limitations of the human perspective than they provide enlightenment. There is, or example, absolutely nothing in business — except perhaps the government-fuelled arms trade — that comes anywhere close to actually “killing” anybody (Please hold all gotcha communications about tobacco and obesity.)

As for Ms. Wente, in a column on Thursday she described Plutocrats as “essential,” and regurgitated the incriminatory statistic that Warren Buffett and Bill Gates are together worth as much as the bottom 40% of the U.S. population. No wonder they’re trying to atone with the Giving Pledge. Presumably what an equitable world needs is more flopping Facebook IPOs and RIM-style corporate mismanagement.

Ms. Wente also regurgitated Ms. Freeland’s theme that it “wasn’t supposed to be this way … inequality would fall and we’d all share in the gains.” But hang on, who said it wasn’t supposed to be this way? And which way? Are “poor” people worse off now that they were 10 or 20 or 200 years ago? It’s easy to bemoan a flattening of incomes due to the unleashing of truly poor and desperate Chinese workers onto world markets, but that, as noted here before, is not capitalism’s failure but Communism’s Revenge. Meanwhile what about the constant improvement in the range and quality of consumer goods, and the fact that their prices have been dropping precipitously?

Ms. Wente acknowledges that many of the wealthy’s innovations have “made the world a better place,” but claims they live in a “transglobal bubble of privilege,” whatever that means. Also they are allegedly “oblivious to the realities of middle-class ordinary life.” Rush them to the Garden of Gethsemane so they might load up on the sins of the world.

It may well be true that the Super Rich fail to appreciate how “lucky” they are — who doesn’t? — but does that mean they should be demonized as if they represented a net loss to humanity? Ms. Wente bemoans those at the “bottom of the heap” who are going to be “stuck there.” So what’s the answer? Give the rich frontal lobotomies to make them less productive?

Ms. Wente concludes that we are headed towards a “permanently divided society,” but this is a moralistic interpretation of a statistic that inevitably arises from differences in human talent and application, and the infinite possibilities of capitalist markets.

The Super Rich in the West did not get that way by “exploiting” the poor. Indeed, without their innovations and capital accumulation, poverty would be infinitely worse. But they have been, and presumably always will be, wonderful scapegoats for those who can’t see the difference between a world where wealth and politics involved hunting down and “distributing” a carcass, or hanging out at the court of a Sun King, and one where you can get super rich only by providing super products and services, or mundane products super cheap and in super quantities.

Somebody should write a book about it.
 
Debt is "too high" when it there is not enough room/time to manoeuvre out of an unfavourable fiscal death spiral (any sufficiently long period of deficit spending from which it becomes impossible to escape if the costs of servicing debt become uncontrollable).  A number of European countries, and the US, are most likely in this situation, and consequently well-ducked when costs of servicing debt tick up.  Those optimists who insist it can't happen seem immune to all past lessons of how suddenly things can move from "trend looks OK" to "all is lost".

Government-issued debt just soaks up capital and militates against capital being more usefully employed.  Governments need to set rules for markets, but stay out of markets.

We are in crisis because people essentially want to deleverage, but governments insist on spending on people's behalf because people are not spending enough (having spent it already) to support revenues at the levels during the period of "spent it already".

If governments insist on paying service unions progressively more money for an essentially unchanging amount of work (ie. no productivity gain) and allowing more funds to be soaked up by increasing burdens of regulation and regulated processes, the outcome is predictable: spending which would expand economic activity is squeezed out.  We have been doing that for well over 40 years.  Eventually the football is just going to be too heavy to punt again.
 
Brad Sallows said:
service unions

service unions *skip*service unions *skip*service unions *skip*service unions *skip*service unions *skip*service unions *skip*service unions *skip*

I don't suppose you know any other records??
 
To folks who get hired to do a job the Govt. asks them to do??.........just throwin' it out there.
 
I am sick and tired of the sterile public sector union debate.

The main purpose of collective bargaining - and it's a good purpose I hasten to add - is that it sets the cost of labour in the marketplace and management cannot manage efficiently and effectively unless it understands all the inputs (costs) and outputs (profits). The industrial model of collective bargaining works quite well in most industrial sectors and well enough in all of them. But the public sector is not like an industrial enterprise, one does not, because, very often, one cannot measure productivity in any meaningful way. If I'm making automobiles and my labour costs rise too much I can replace many (relatively) low paid production line workers with a combination of robots and a few highly paid engineers and technicians - I can, within the constraints of free and fair collective bargaining, keep my costs in an acceptable range in proportion to my income and profits. I, as the proprietor, know how to cut labour costs and so does the trade union so we reach a reasonable accommodation on my total cost of labour and I (proprietor) actually have an interests in keeping more people employed because unemployed people are unlikely to buy my products. The same rules don't apply in many (most?) parts of the public sector: I cannot, for example, for a whole host of reasons, consider replacing corrections officers, just for example, with robots; they, the corrections officers, do not fit in the industrial collective bargaining model.

Back in the early 1960s when we, in the US led West, jumped into collective bargaining for the public sector we picked the wrong model. We, everyone, taxpayers, workers, managers - the big WE - need an efficient and effective public sector, we don't want to and shouldn't have to pay for unproductive people doing unnecessary jobs. Brad and Bruce ought to be able to agree on that fundamental point. I am convinced that the current, industrial model of labour relations makes that harder to achieve. I'm not sure I could design a really good model - out of my league, I'm afraid - but I am pretty sure that I could do better than just keeping the one we have.
 
Brad Sallows said:
If governments insist on paying service unions progressively more money for an essentially unchanging amount of work (ie. no productivity gain) <snip>

The City of Toronto "cut the gravy" to at least one of their service unions.

Report from the Chief to the City of Toronto, Sept. 2012:
http://www.toronto.ca/legdocs/mmis/2012/cd/bgrd/backgroundfile-49838.pdf

"( Toronto ) EMS' emergency patient volumes continue to grow, with a 4.3% increase in 2012 over the same period in 2011. Over the past ten years, emergency patient transport volumes have increased by 29.3%, from 141,175 in 2002 to 182,538 in 2011, reflecting growth in the city's population and increases in the number of residents over age 55. However during these ten years, there has been no increase in the paramedic workforce."

"These increases have progressively eroded EMS response times year over year as the number of available ambulances at any one time is diminished by the increased patient volume."
 
I'm not sure what amount is equal to "gravy".

The value of a dollar is approximately 1/6th what it was in 1970 (ie. $600 today buys what $100 bought in 1970).  So for any given level of training and experience, today's salary should be - roughly - 6 times what it was in 1970.

Public spending has to increase each year for three reasons: population growth (more services needed), inflation, and new legislation and regulations (rarely are any taken away).  If public revenue does not increase commensurately, public services are squeezed.  If compensation costs grow above the rate necessary for inflation and the increased head count (more services), public services are squeezed.

As long as the requisite basic services I expect from government are provided and taxes remain where they are, I don't care about the results of the fight between unions and anti-poverty advocates.  They can settle among themselves whether teachers need more money or children need lunch programs.

Since this essentially pits the NDP against itself, I look forward to their answer to this question: are they a party at the service of unions, or are they a party at the service of the unfortunate?
 
Brad Sallows said:
I'm not sure what amount is equal to "gravy".

Productivity / workload is measured by Unit Hour Utilization (UhU). UhU measures the percentage of an hour that paramedics are actively engaged in responding to calls – as opposed to being deployed waiting for calls.

High performance ( urban ) systems may have UhU ratios as high as 0.50 or better; low performance ( rural ) systems typically score 0.25 or less.
Publicly provided ambulance services consider 0.45 as the threshold for adding ambulances. Fire department-based EMS systems typically have UhU ratios of 0.3.

Toronto operates between 0.45 and 0.50.

 
>Publicly provided ambulance services consider 0.45 as the threshold for adding ambulances...Toronto operates between 0.45 and 0.50.

Sounds like a case of "Public spending has to increase each year for ...population growth (more services needed)".  But we don't know whether the revenue is lacking, or whether the money is there but has been squeezed out by other "imperatives".
 
Ambulances might present an interesting management challenge. Assuming that:

    1. Ambulances are reasonably easy to buy - lead times are in weeks or months, not years; and

    2. There is an acceptable pool of unemployed/underemployed/misemployed paramedics with a reasonable range; then

In that case, the city management can accept the risk of operating on or just above the statistical threshold because the "problem," when (not if) it arises, will be solved without resort to crisis management.

But consider e.g. long term care for the elderly "bed blockers" in our (very scarce) critical care beds: while e.g. nurses are readily available, there is a very long lead time (several years) required to build new long term or chronic care facilities and, given the existing cost/profit model, it is very likely that the "solution" will have to be publicly funded. (If the cost/profit model worked for business there would, given the current high demand, already be a healthy* supply of new chronic/long term care facilities.)

_____
* Pun intended  :D
 
E.R. Campbell said:
But consider e.g. long term care for the elderly "bed blockers" in our (very scarce) critical care beds: while e.g. nurses are readily available, there is a very long lead time (several years) required to build new long term or chronic care facilities and, given the existing cost/profit model, it is very likely that the "solution" will have to be publicly funded. (If the cost/profit model worked for business there would, given the current high demand, already be a healthy* supply of new chronic/long term care facilities.)

_____
* Pun intended  :D

Interesting. We just had a similar conversation at work the other day. As part of my Masters, I had to do a unit in my Health Policy course on geriatrics vis-a-vis ER. The primary cause of ER wait times is blocked beds. Most of that is due to lack of spaces upstairs on the wards, which in turn is due to people waiting for placement in a PCH. Our PCH "waiting list" runs around 20% of occupancy, which compares to other centers like Montreal at 13%. We're at the lead edge of the baby boom wave here. The 1948 cohort is 65 years old next year. In five years, the demand for placement is going to increase exponentially year over year. Our Chief Medical Officer has made the Health Minister aware of this, and that it's only going to get worse, yet the Province is reluctant to build Personal Care Homes that in 30 years will no longer be needed. Equally, they're unwilling to build these facilities with the infrastructure in place to convert them to housing units later on. How short sighted is that? There's certainly no shortage of staff available to work at the new PCHs.
 
Yep! Life would be simpler if we could just recall what Saint Tommy Douglas really wanted ~ protection from catastrophic medical bills through public insurance, instead of focusing on what Marxist ideologies like Monique Begin and Pierre Trudeau imposed upon us ~ the Canada Health Act.
 
Brad Sallows said:
But we don't know whether the revenue is lacking, or whether the money is there but has been squeezed out by other "imperatives".

Some of those imperatives are named and shamed in today's Sun.

TORONTO - What is the price of safety in Canada’s biggest city?:
http://www.torontosun.com/2012/11/21/ems-senior-managers-make-huge-overtime-claims

Selection of Toronto EMS management overtime payments:

•  Deputy Commander — base $100,000 rose to $142,00 with overtime
•  Commander Communications Centre — base $100,000 rose to $128,000
•  Superintendent Education and Development — base $95,000 rose to $119,000
•  Superintendent Operations — base $95,000 rose to $130,000
•  Superintendent Operations — base $95,000 rose to $119,000
•  Superintendent Operations — base $95,000 rose to $148,000
•  Deputy Commander — base $100,000 rose to $125,000
•  Superintendent Communications Centre — base $95,000 rose to $117,000
•  Superintendent Education & Development — base $95,000 rose to $121,000
•  Superintendent Education & Development — base $95,000 rose to $136,000
•  Commander Community Safeguard Services — base $105,000 rose to $139,000
•  Commander Operations — base $105,000 rose to $132,000
•  Superintendent Operations — base $95,000 rose to $137,000
•  Commander Operations — base $105,000 rose to $137,000
•  Superintendent Operations — base $95,000 rose to $140,000
•  Superintendent Operations — base $95,000 rose to $140,000
•  Commander Operations — base $105,000 — rose to $137,000

A Superintendant is a Supervisor. A Commander is a Manager. These are not senior management positions ( Chiefs ).

“Ten years ago we could field 67 ambulances in a typical morning shift; now we are down to 60."

 
Moving away from the wage argument in the public sector to the larger economy, here is an interesting inversion of the standard tropes promoted by the poverty industry. If confirmed (and similar studies in other nations do tend to show the same pattern in liberal democracies) then the real answer to the poverty question is to identify and remove roadblocks to social mobility:

http://opinion.financialpost.com/2012/11/20/poor-getting-richer/

‘Poor’ getting richer
Niels Veldhuis and Charles Lammam, Special to Financial Post | Nov 20, 2012 7:42 PM ET | Last Updated: Nov 21, 2012 12:38 PM ET
More from Special to Financial Post


This research ­overthrows the claims of Occupy ­protesters

It’s hard to blame Canadians for believing the great myth of income stagnation given the continuous stream of reports pointing to the low growth in average incomes over the past several decades.

Others have taken the narrative even further. For example, in a recent op-ed, Liberal leadership hopeful Justin Trudeau claimed: “In the past 30 years, the Canadian economy has more than doubled in size. But unlike times before, virtually all of the benefit of that growth has accrued to a small number of wealthy Canadians.”

Or take the Conference Board of Canada’s recent How Canada Performs report that finds that: “most gains have gone to a very small group of ‘super-rich,’ ” and “the average income level of the poorest group of people in Canada rose over the time period … but only marginally.”

Thankfully, the story of stagnating incomes in Canada is just that, a great fictional tale. The reality is that most Canadians, including those initially in the poorest group, have experienced marked increases in their income over the past two decades.
Using Statistics Canada’s Longitudinal Administrative Databank, a new study, Measuring Income Mobility in Canada, tracks a sample of a million Canadians to see how their incomes change over time.

The results are jaw dropping.

In 1990, the lowest 20% of income earners (Canadians were put into five income groups from lowest to highest income, with each group containing 20% of the total) earned an average income of just $6,000 in wages and salaries.

By 2009 (the last year for which we have data), 87% of those in the bottom income group moved to a higher group. In other words, almost nine out of 10 Canadians who started in the bottom 20% had moved out of low income.

Of those from the bottom 20% in 1990 that moved up, an almost equal proportion moved into each of the four higher groups; 21% moved up to the second income group; 24% moved to the third income group; 21% ended in the second-highest income group; and 21% of those who began in the bottom income group in 1990 ended up in the top 20% by 2009.

What about the income levels of the poorest individuals that so many of us worry about? The individuals that began the 19-year period in the bottom 20% started with an average income of $6,000, but by the end of the period their incomes had increased to an average of $44,100 (see nearby table).

Clearly the “poor” aren’t getting poorer; they’re getting significantly richer.

And as the table shows, the largest gains in income occurred for the lowest earners, not the “rich.”

Individuals in the top 20% experienced a gain in their average incomes of $17,700 or 23% during this period, which pales in comparison to the $38,100 or 635% increase in the average income of those initially in the bottom income group. Indeed, the dollar income gain by the top 20% was the smallest growth in average income among the five groups.

Perhaps the most powerful conclusion, however, is with respect to income inequality. Consider that the average income of those initially in the top 20% in 1990 ($77,200) was 13 times that of those initially in the bottom 20 % ($6,000). By 2009, those who were initially in the top 20% had an average income ($94,900) that was only twice as high as the income ($44,100) of those who were initially in the bottom 20% in 1990. Put simply, income inequality for the same people decreased, not increased from 1990 to 2009.

Of course, this differs significantly from the perception of Occupy protesters and other prominent voices in the income inequality debate. Unfortunately, they wrongly assume that Canadians are permanently stuck in the same income groups year after year. Appropriate measures of income inequality should follow the incomes of specific people rather than compare the average income of different groups of people at different points in time.

Most Canadians start off with a relatively low income because they are young, new to the workforce, and lack work and life experience. Once they acquire education and job-related skills, their income typically increases until it peaks in middle age and then drops again once they pass their peak earning years and prepare for retirement.

The conclusion that Canadian incomes have stagnated and that inequality is on the rise couldn’t be further from the truth and misses one of the great Canadian virtues: We live in a dynamic society where the majority of us experience significant upward income mobility over the course of our lives.

Financial Post

Niels Veldhuis and Charles Lammam are economists at the Fraser Institute and co-authors of the recently released “Measuring Income Mobility in Canada,” available at www.fraserinstitute.org
 
I regularly say that Canada is, in most things, one of the "world's top ten" nations, and, in almost every respect, always in the "top 10%." The Economist agrees in its annual "Top 10 Countiries in Which to be Born" report which is reported upon by The Telegraph:

Top 10:

10. Hong Kong    (7.80/10)
9.  Canada          (7.81/10)
8.  Netherlands  (7.94/10)
7.  New Zealand (7.95/10)
6.  Singapore      (8.00/10)
5.  Denmark        (8.01/10)
4.  Sweden        (8.02/10)
3.  Norway          (8.09/10)
2.  Australia        (8.12/10)
1.  Switzerland  (8.22/10) Best country in which to be born in 2012/13

There's not too much (0.22/10) between 1st and 10th; the survey considers: GDP, life expectancy, quality of family life, political freedom, job security, climate and gender equality, and  economic forecasts for 2030.
 
And now the bad news as an infographic from the National Post. Every Canadian is in debt to the tune of $16,883 for the Federal portion, and depending on the province, by a greater or lesser amount of additional debt (Alberta excepted). Rising interest costs when interest rates rise will make things even worse, yet there seems to be no real plan by any government anywhere to take serious action. Not states in the infographic are unfunded liabilities like pensions or Municipal debts, so the actual figures are far higher.

http://news.nationalpost.com/2012/11/23/graphic-canadas-national-debt/

 
More on why we are so uncompetative; if this level of bureaucracy is getting in the way of a single project in BC, extrapolate across Canada (and scale to every level of business; I recently listened to a horror story about a woman in the Niagara region who wanted to open a small, boutique, winery. She needed to fill forms and get approvals from 8 different bureaucracies; just for an operation that would have hired 4 people....)

Since overspending is the source of the economic crisis, pruning and streamlining the bureaucracy will be a twofer: Eliminating thousands of bureaucrats (and their wages and benefits), and allowing productive projects to come on line and create new wealth faster:

http://fullcomment.nationalpost.com/2012/11/27/koch-weissenberger-a-mountain-of-bureaucracy-for-b-c-s-jumbo-ski-resort/

Koch & Weissenberger: A mountain of bureaucracy for B.C.’s Jumbo ski resort

George Koch and John Weissenberger, Special to National Post | Nov 27, 2012 12:01 AM ET | Last Updated: Nov 27, 2012 12:02 AM ET
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CALGARY — Perched atop Glacier Dome at 3,000 metres on the spine of B.C.’s Purcell Mountains, the skier first absorbs the dazzling, 360-degree view of glaciers, peaks and deep forested valleys, before pushing off in lovely powder snow and descending nearly 1,500 vertical metres into the Jumbo Creek valley.

Until now, this experience was restricted to elite heli-skiers and those few ski-touring on foot. But last week, B.C.’s Liberal government designated this area the province’s newest mountain resort municipality (the same status as Whistler). Soon, thousands of ordinary skiers and sight-seers may be riding a gondola onto Glacier Dome year-round, while a compact new village sprouts at the resort’s base.

For Oberto Oberti, a Vancouver-based architect and life-long passionate alpine skier, it has been a 22-year slog to transform Glacier Dome and the adjoining, much smaller Jumbo Glacier (for which the development is named) into Canada’s only true high-alpine, year-round ski area and sightseeing/hiking resort. Oberti, who also conceived and initially drove the hugely successful Kicking Horse Mountain Resort more than a decade ago, performed every study, submitted every report and fulfilled every one of the time-consuming, expensive steps demanded by B.C.’s comprehensive regulatory process.

First proposed in 1991, Jumbo was recognized as suitable for development in the East Kootenay Land-Use Plan of the Commission on Resources and Environment (CORE) in 1995. Various NDP ministers of the day then promised a “fair” process for Jumbo. Nine years later, Jumbo received its provincial Environmental Certificate, renewed in 2009 so Oberti could complete the remaining key step, the Master Development Plan. In March of this year, the B.C. government signed the Master Development Agreement. Last week’s move is the final legal step before construction.

All along, Oberti faced misinformation, junk science, paranoia and attempted political sabotage. Ad hominem attacks assailed him and his company’s directors. Many supporters were cowed into silence, but Oberti received strong support from Liberal MLAs Bill Bennett and Ralph Sultan, now ministers in Premier Christy Clark’s cabinet.

Oberti’s detractors were plain wrong on every major issue. They continue to claim that Jumbo threatens grizzly bears. Years ago, a definitive study found that just two grizzlies use the valley, of roughly 45 in the central Purcells. The regional population is now estimated at 4,300, 15,000 province-wide. Annually, about 250 grizzlies are legally shot. Jumbo, in other words, is immaterial to the grizzly.

Jumbo’s opponents love the word “pristine.” In fact, the valley has been logged and mined, and a road extends almost to the village site. Opponents snowmobile in to paint anti-Jumbo signs in the snow, heli-ski operators have cut runs through the woods, and in summertime there’s mechanized ski-race training on the nearby Farnham Glacier.

Lastly, the word itself: Jumbo. From the U.S. border to Roger’s Pass, the Purcells and adjoining ranges comprise over 24,000 square kilometres, of which more than 15% is already park or conservancy. The resort village will cover one — yes just one — square kilometre. The controlled recreation area (where lifts can be built and people ski) will cover about 60 square kilometres.

Given Oberti’s success, one could say B.C.’s development approval process works. But does it?

Projects face fanatical opponents-of-everything, who use every procedural and rhetorical device to stop developments, sometimes even after formal approval. Who else would endure over two decades of time, expense, delays, broken political promises, bureaucratic machinations and continuous vilification? Anyone lacking Oberti’s rare combination of commitment, patience, contrariness and sheer love of skiing would have quit long ago.

Oberti’s experience shows how hard it’s become to get anything serious done in British Columbia. In September, the University of Calgary’s School of Public Policy ranked B.C. Canada’s least tax-competitive province. A recent B.C. Business Council report noted that, while the World Economic Forum rated Canada 12th in competitiveness, B.C.’s outlook is uncertain. The report cites $100-billion in “major project investment on the books” province-wide, and calls for a “predictable and competitive” regulatory regime. The Jumbo story suggests that’s a pipe dream.

Indeed, local NDP MLA Norm Macdonald called last week’s move an “abuse of power” and strongly implied his party would kill the project. There’s a provincial election next May.

If that was more than sabre-rattling, it would suggest a radical leftward slide by B.C.’s NDP. Over the decades, Jumbo had the explicit support of two NDP premiers — Mike Harcourt and Glen Clark — and the neutrality of another, Ujjal Dosanjh.

Killing Jumbo Glacier Resort now would require rewriting province-wide land-use and local government legislation in such a way as to affect only Jumbo, while breaking a contract providing 50-year use plus fee-simple land titles. It’s hard to see the courts upholding such arbitrary, capricious government action. Even if they did, the required compensation would be in the tens of millions of dollars. Using taxpayers’ money to kill a duly-approved project that would generate 800 jobs plus hundreds of millions in wages and taxes would be obscene — and perhaps too much even for the NDP.

National Post

George Koch is a Calgary-based writer and columnist for Ski Canada magazine. John Weissenberger is an East Kootenay taxpayer.
 
Ontario will be an anchor around the rest of the Canadian economy for years to come. Inexpensive energy has been the cornerstone of our wealth for generations, Ontario's Liberal government has managed to invert the premise and provide expensive energy in just nine years. Rising rates will drive out manufacturing and energy intensive industries, while the high rates and high interest rates OPG will have to borrow money at will suck investment money out of the economy, preventing the creation of new jobs and wealth:

http://opinion.financialpost.com/2012/11/28/terence-corcoran-another-downgrade-for-ratepayers/

Terence Corcoran: Another downgrade for ratepayers

Terence Corcoran | Nov 28, 2012 8:46 PM ET | Last Updated: Nov 28, 2012 9:04 PM ET
More from Terence Corcoran | @terencecorcoran

Ontario’s ­electricty mess worsens

The fallout from the Ontario government’s electricity mess continues to spread. News Wednesday that Standard & Poors had downgraded Ontario Power Generation to “bbb-” offers another log to Dalton McGuinty’s power-industry flame-out. At the same time, a leading industry expert — former Ontario Power Authority chief Jan Carr — says the cost of cancelling two major power plant contracts is much higher than the government claims.

Meanwhile, the World Trade Organization has apparently ruled — as the government would have been warned — that its Buy Ontario electricity regulations broke Canada’s trade commitments.
Related

    Ontario’s Power Trip — The gas bungle: $800M?

In a regulatory regime that is costing Ontario residents billions of dollars, new developments often seem inconsequential. What’s another downgrade, another loss, another rate increase — and another trade ­ruling?

First, to S&P: “We believe OPG’s stand-alone financial risk profile is significant.” Cash flow metrics are “weak,” related to pension liabilities but also to the fact that under McGuinty policy the company’s return on investment has become “modest.”

No kidding. The latest quarterly report from OPG, wholly government owned and controlled, showed a $139-million “net income” in the third quarter, an improvement over a loss of $154-million last year. The “improvement,” however, had nothing to do with operations. The money came from investments held on a long-term basis to fund the future decommissioning of the company’s nuclear plants.

Looking forward through the lens of the Standard & Poors report suggests OPG and Ontario ratepayers may have to depend on the decommissioning fund more in future. OPG will “not pay out dividends in the foreseeable future,” said S&P. Indeed, OPG could see another downgrade to bb+.

More importantly, OPG will likely need more cash. Guess where that will come from?

For the [stand-alone ratings] to move a notch higher, we believe OPG would need to improve significantly the level and stability of is overall cash flow strength comfortably above 10%-12%. This could result from an equity injection from the province which we consider to be highly unlikely. It could also result from some form of additional regulatory cash flow support during the upcoming period of high capital spending on large projects that we have seen for other Canadian utilities in a similar position.

The words “additional regulatory cash flow” are code for electricity rate increases to prop up OPG.

The reason for OPG’s financial decline are many, including ritual nuclear cost overruns and government-mandated projects, including the giant Lower Mattagami River project, a dubious extravaganza that is expected to absorb $1-billion in capital expenses in each of the next two years.
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Other government-imposed burdens were noted by S&P. “In implementing its energy policy favouring renewable-energy generation to replace the less eco-friendly coal-fired generation facilities, the province has directed OPG toward investments in projects on various occasions. It also required the utility to shut down the remaining coal-fired plants by 2014.”

All this costs money that OPG does not have and instead must borrow from the province. Since the company is owned by the province, OPG bonds are rated “A-.” But if OPG’s stand-alone fiscal risks continue to deteriorate, S&P warns, it may no longer be able to piggyback on the province’s rating. A decline in the stand-alone rating to “bb+” could untether it from the provincial rating and would “result in a downgrade on OPG.”

All this spells bad news and higher costs for Ontario power consumers. From the McGuinty government, the likely response will be denial, following a pattern seen over the gas-plant closures.

Mr. McGuinty has been adamant about the costs to Ontarians of relocating two gas generating stations. The cost of killing the Mississauga plant in suburban Toronto and moving it to Sarnia is $190-million. The proposed Oakville plant, signed with Trans Canada Energy, was killed and moved to Lennox for a mere $40 million. Total cost: $230-million.

Premier McGuinty has taken to ridiculing any suggestions that the cost to Ontario taxpayers or electricity ratepayers might be higher. In an interview with The London Free Press on Nov. 2, Mr. McGuinty was asked the question: “What do you say to Ontarians who still want answers? The Conservatives say the cost of moving plants is up to $1-billion.” To which the premier replied: “What was the latest number? $1.3-billion? Do I hear 1.7? When are we going to get to 2.8? It’s kind of an interesting game.… In total, we are talking a $230-­million cost.”

Mr. McGuinty is also fond of pointing to what appears to be a vast cache of documents the government released on the gas plant cancellations. After the National Post reported on documentary evidence that the cost of cancelling the plants could run to $1.3-billion or more, he told reporters: “You might ask yourself — we’ve had 56,000 pages of documents available for a month now — what has come of this?”

Not much, it is true. Mr. McGuinty is right that the released documents, while thick in volume, are thin in detail on the final costs — but with good reason. As Mr. McGuinty well knows, the 56,000 pages of internal government communications over the plant closures only cover documents dated 2010 and 2011. None are dated 2012, and therefore none of the documents deal with the final settlement agreement between the government and TransCanada Energy over the Oakville plant.

The documents come to a dead end in December, 2011, eight months before Mr. McGuinty’s Liberals reached a memorandum of understanding with TransCanada Energy. Thin on detail, the MOU provided only clues as to the real cost to the taxpayers and ratepayers of the government’s decision — for political reasons — to terminate the signed Oakville contract.

Former Ontario Power Authority chief executive Jan Carr, in an accompanying commentary, takes his own stab at estimating the cost of breaching the Oakville and Mississauga gas plant contracts. He says the $230-million government claim is way too low and conservatively puts the cost to taxpayers and ratepayers at $800-million.
 
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