Friday, October 24, 2014

Daycare by the numbers: Quebec’s progressive blueprint for Canada

Ever since NDP leader Tom Mulcair promised Canadians a scaled-down version of Quebec’s $7-a-day childcare, Quebec’s universal model for daycare benefits has come under renewed attacks from free-market economists.

Esteemed economist Stephen Gordon says Quebec’s model is “regressive” and goes so far as to claim its supporters are “intellectually bankrupt”. He resorted to similar acrimony attacking tuition cuts, opponents of FIPA and hikes to minimum wage.

How we rate

Before challenging the claims of small-government experts, let’s see how we rank in social spending, childcare subsidies and pre-primary education compared to other developed countries.

Source: OECD Social Expenditure Database. Every percentage point of GDP equals $18.8-billion. The 4.3 point gap from average means that our social spending is below average by $81-billion a year.

Source: OECD Family database (PF3.1). The 0.34 point difference from average comes to $6.3-billion a year.

After decades of “starve the beast” tax cuts — and the consequent social spending cuts — we have fallen to the bottom of the class.

Quebec setting a bad example?

Our low score on childcare spending would be much worse if it wasn’t for Quebec. They spend 60% of our nation’s total on childcare. Without them, we’d come next to last.

But according to free-market economist Stephen Gordon, Quebec is the problem. In an economics blog — where he claims Harper’s Orwellian-titled “Universal Child Care Benefit” meets the criteria for progressiveness — he criticizes Quebec’s $7-a-day plan for being regressive.

He bases this on a 2002 thesis study of Quebec’s daycare plan that shows low-income families use daycare less than wealthy families (which Andrew Coyne also cited in a recent column.)

Closer look

First, the “average subsidy received” is a nonsense number. Every family received the same amount per child, which was $6,600 back then.

Second, it’s not surprising the lowest income group used the daycare benefit the least. This includes families with providers who are part-time workers (often unwillingly) as well as those who are on unemployment insurance, welfare and disability. There may be one stay-at-home parent, which means the family doesn’t require daycare. Or money might be so tight even $7-a-day is too much and they rely on family for free childcare.

As Gordon points out, some workers work irregular hours, which daycare services may not provide for. The solution for this is simple: more government-run daycare. Create $7-a-day childcare spaces to accommodate late-night and shift workers.

Investment pays for itself

To better help out low-income families, free daycare spaces can also be provided. This would be especially helpful for single mothers who want to increase their living standards by working instead of relying on meager social assistance benefits.

As the Toronto Star points out, Quebec’s childcare program creates enough economic growth to pay for itself:

By 2008, about 70,000 more women with young children had entered the workforce who would not otherwise have been working, a 3.8 per cent increase, [economics professor Pierre] Fortin found. The ripple effect of their employment pumped an additional $5.2 billion into the Quebec economy, boosting the province’s Gross Domestic Product by 1.7 per cent.
The increased economic activity, which includes mothers’ income and consumption taxes, more than covered the province’s $1.6 billion annual child-care costs that year. (The province subsidizes each spot by about $10,000 annually.) And it poured more than $700 million in additional revenue into federal coffers.

Why Quebec’s plan is progressive

Economists who criticize Quebec’s plan for being “regressive” are bad at accounting. They ignore how the subsidy is funded: through progressive taxation.

So while a universal daycare program “gives free money to rich people” — providing the same benefit for everyone — the wealthy pay much more for the “free money.”

Examining the costs of expanding Quebec’s plan nationwide

To see how much free money the rich would really get under a national daycare program, let’s expand Quebec’s program nationwide and break down the costs. Quebec is upgrading its program to 250,000 spaces to meet demand. Extending their plan nationwide would require about one million childcare spaces.

Quebec spends about $10,700 for each childcare space. So federally, this would cost about $11-billion a year. Does that sound high? At 0.58% GDP that would be less than what South Korea spends on childcare.

Another way of putting this in perspective is comparing this spending to Harper’s tax cuts. Since coming to power, Harper has cut taxes by $45-billion a year — real free-money giveaways to the rich.

Although these tax cuts did nothing to boost anemic economic growth, expanding Quebec’s daycare federally would cost a fraction of the wasteful tax cuts, provide a much-needed service and produce actual economic benefits.

Daycare funding breakdown

There are 15.3 million family units in Canada to fund 1 million daycare spaces. (A family unit includes two or more people living together, with or without children, and unattached individuals.)

Daycare subsidies act like an insurance policy spreading out the cost — people pay in before and after they use it.

Childcare spending is also a good way to help low- and middle-income families struggling with high debt loads and falling real incomes (adjusted for inflation).

To get an idea of how much each family would pay for an $11-billion daycare program, personal income taxes make up about 41% of federal and provincial general revenues. That would mean income taxes would pay for $4.5-billion of $11-billion.

Here’s the break down by income group which shows the average annual cost per family:

Family group Tax share Income range Share of $4.5-billion Cost per family
Bottom 20% 0.9% $0 –
$25,900
$41-million $13
Second 20% 4.6% $25,901 –
$46,100
$207-million $68
Middle 20% 10.8% $46,101 –
$70,800
$487-million $159
Fourth 20% 22.1% $70,801 –
$111,500
$997-million $326
Top 20% 61.6% $111,501
and up
$2.78-billion $908

Clearly the wealthiest don’t benefit the most. They pay a lion’s share of the cost because they make a lion’s share of the income.

Cutting costs

Quebec’s daycare spaces are expensive! At a $10,700 annual subsidy plus the $7-a-day charge that adds up to $12,520 a year, or over $48 a day. Daycare costs in Ontario are around $31 a day.

If costs could be brought down to $35 a day, the total cost would be reduced from $11-billion a year to $7.3-billion a year.

Cost per day Charge per day Subsidy per child Cost of subsidy
$48 $7 $10,660 $10.7-billion
$10 $9,880 $9.9-billion
$15 $8,580 $8.6-billion
$35 $7 $7,280 $7.3-billion
$10 $6,500 $6.5-billion
$15 $5,200 $5.2-billion

To keep costs down, daycare could be broken up into two groups: basic and premium. Like the government dictates what doctors can charge per visit, it can also cap basic child care spaces at $30 a day, where the charge to parents is $7. Then a fixed number of premium spaces could be allowed to charge $45 a day and higher. Wealthier parents would get the same subsidy as everyone else — $23 a day — but pay a higher charge: $22 a day and up. That would cut costs to $6-billion a year.

We can also restructure existing childcare spending. (Clearly it makes no sense to pile childcare subsidy on top of childcare subsidy):

Spending Aprroximate Cost
Universal Child Care Benefit $2.5-billion
Childcare expense deduction $1-billion
Existing childcare spending $4-billion
Total $7.5-billion

Finding tax room

Canada is not only a laggard in social and childcare spending, it’s also a laggard in collecting taxes when compared to other developed nations. A study from the Canadian Centre for Policy Alternatives found that the richest pay the lowest tax rate:

The top one per cent of Canadian families — those earning at least $266,000 — paid 30.5 per cent of their income in taxes in 2005. That was less than any other income group — even the lowest.

Here’s how Canada compares when it comes to taxes:

Our effective corporate tax rate is so low because of 50% in corporate tax cuts since 2000, plus many corporate subsidies including $2.8-billion a year in tar-sands subsidies.

Source: KPMG’s Individual Income Tax and Social Security Rate Survey 2012.

Source: OECD Revenue Statistics.

The 4.9 point difference between what we collect in taxes now compared to what we collected in the 1990s amounts to over $92-billion a year in lost revenues.

Divide and Conquer

Why do right-wing economists claim universal benefits are regressive and only help the rich? Why do they claim it’s better to help the poor directly?

In short, their economic policy is agenda-driven. Here they are trying to divide and conquer society by pitting middle-income earners against low-income earners and centrists against progressives.

Stephen Gordon shows his real intention is to “starve the beast” and keep taxes low — not help the poor. He boils down the starve-the-beast agenda to a four-point plan:

  1. Bring in big tax cuts

  2. Create a budget crisis

  3. Make deep cuts to spending

  4. Go to 1

Low-tax economists know that under budget constraints the poor are the first to come under attack with little media attention.

Take, for example, when Harper cut unemployment insurance benefits for low-income workers — reducing coverage to 4 out of 10 workers. Did Gordon criticize Harper for attacking the poor? No. But he did callously remark when Harper spent the savings on an EI tax cut:

Beast. Starving a tad more. "Conservatives to cut EI premiums in response to sluggish job market" t.co/k8vq2oUpUf

Society is united with universal benefits. They also justify additional spending to better help low-income families.

Conclusion

Over the past 35 years, real incomes (adjusted for inflation) have fallen for all but the wealthiest Canadians. Unlike the centrist Keynesian era (1945-1980), all segments of society are no longer benefiting from economic and productivity growth.

To level the playing field, we need to increase public benefits so Canadians have more money in their pockets. This will not only raise living standards, it will boost economic (GDP) growth — now the lowest its been since the Great Depression.

The low-tax, small-government, free-market reforms of the past 3 decades have been a colossal failure. It’s time to turn the tide. We need to bring back postwar levels of progressive taxation and restore our Just Society.

Notes

Annual daycare costs are based on 260 childcare days per year.

The OECD’s study PF3.1 Public spending on childcare and early education didn’t include numbers for Canada’s childcare spending. These were taken from the The state of early childhood education and care in Canada 2012 report by movingchildcareforward.ca. The 2009 number in 2012 constant dollars was converted to 2009 dollars. This number was divided by Canada’s 2009 GDP at current market prices. ($3,732,696,996 2012 $CAD -> 3,509,347,093.78 2009 $CAD; 3,509 / 1,567,007 $millions = 0.002239 => 0.224% GDP.)

Statistics Canada tables:

Wednesday, October 1, 2014

Neo-conservative assault on minimum wage based on manufactured evidence

To the free-market purist, the 19th century was a golden age. Back then the size of government was miniscule. The rich paid ultralow taxes. Regulations were little to nonexistent. There were no worker benefits, either private or government. There was no overtime pay, vacation pay, 40-hour work week or minimum wage.

So it’s not surprising these free-market fundamentalists are waging a war against increasing minimum wage in Canada and the US.

Creative Economics

One of the most ridiculous attacks comes from esteemed neo-conservative economist Stephen Gordon, who the Liberals point to as the “expert” they base their new EI “job creation” tax cut on.

Using flaky math to massage the statistics, Gordon claims the 13% rise in real minimum wages between 2008 and 2013 killed “between 70,000 and 164,000 jobs” among young Canadians. (The real minimum wage is adjusted for inflation.)

Counter-factual counterfactuals

Here’s Gordon’s graph showing the difference between what happened — and what could’ve been — if we only left minimum wage alone:

Of course, Gordon's weaselnomics leave out the fact that the 2009 Great Recession — which all Western economies have yet to recover from 6 years and counting — is the actual cause of the drastic drop in youth employment.

Canada’s minimum wage not high

When compared to other Anglo-Saxon countries, our minimum wage is far from the maximum.

International comparison

According to Gordon’s hypothesis, Australia should’ve suffered the worst losses in youth employment because they have the highest minimum wage, by far.

But the evidence doesn’t support this self-serving claim. In fact, all countries faced similar drops in youth employment:

Peak to 2013 levels

To get a better picture, here’s a comparison of drops in youth employment from peak to 2013 levels: Canada 8%, Australia 9%, US 14%, UK 14%.

Canada and Australia fared better because they didn’t have financial meltdowns and their economies were boosted by resource exports.

Krugman on young workers

In Paul Krugman’s book, End this Depression Now! he talks about the terrible toll the Great Recession has had on workers, especially the young:

Not since the 1930s have so many Americans found themselves seemingly trapped in a permanent state of joblessness. …
Meanwhile, there’s the plight of those who don’t have a job yet, because they’re entering the working world for the first time. Truly, this is a terrible time to be young.
Unemployment among young workers, like unemployment for just about every demographic group, roughly doubled in the immediate aftermath of the crisis, then drifted down a bit. But because young workers have a much higher unemployment rate than their elders even in good times, this meant a much larger rise in unemployment relative to the workforce.

Conclusion

Stephen Gordon exemplifies why economics is dismal, but doesn’t remotely resemble a science. In the hands of market fundamentalists, economics is nothing more than politics with math thrown in to lend authority to political agendas.

A higher minimum wage could cause a drop in employment. Or it could create jobs as people spend and save more boosting the economy.

There are too many factors involved to calculate its precise affect. All that can be said with certainly is that it hasn’t had a pronounced effect either way — not in Canada, and not in Australia where the minimum wage is currently $16.50 CAD (unemployment is 6.1%.)

Given we have returned to Gilded Age levels of inequality, it’s better to err on the side of social justice than the plutocrats’ bottom line.

Sunday, September 28, 2014

Neo-conservative economists try browbeating Canadians on FIPA

Harper quietly announced his government ratified the FIPA investor-protection treaty with China.

Justin Trudeau quietly avoided the issue. (Although it’s clear he supports FIPA given he criticized Harper for putting limits on Chinese investment in the tar-sands.)

But some neo-conservative economists were much more vocal.

Economist Kevin Milligan

Kevin Milligan tweeted that opponents of FIPA are ultranationalist hypocrites:

What happens if you apply the Green/nationalist ‘sovereignty über alles’ framework to international climate treaties? Or is that just difft?

Only an economist could be this obtuse. Yes giving up democratic rights to stop destructive behaviors and preserve the world for future generations is a smart thing to do.

Right-wing politicians and economists are silent on how FIPA is good for Canada.

But China is a totalitarian dictatorship. Why would we want to cede sovereignty to fascist oligarchs who want unfettered access to our resources, especially the dirty-energy tar-sands? The two are the very opposite, not the same!

Economist Stephen Gordon

Stephen Gordon uses the same nationalist rhetoric implying critics are flag-worshipping racists.

He insists FIPA can’t stop a government from passing laws that protect the environment.

Of course, he’s an neo-con economist with an ideological vested interest. Not a lawyer with expertise in international trade agreements.

Trade expert Gus Van Harten

One such expert is Gus Van Harten. He is not a neo-Nazi, as Gordon might have you believe, but an Osgoode Hall law professor who has written two books on investment treaties. One criticism he has:

Chinese companies will be able to seek redress against any laws passed by any level of government in Canada which threaten their profits. Australia has decided not to enter FIPA agreements specifically because they allow powerful corporations to challenge legislation on social, environmental and economic issues.
Chinese companies investing heavily in Canadian energy will be able seek billions in compensation if their projects are hampered by provincial laws on issues such as environmental concerns or First Nations rights, for example.

Australia

Given Australia — which already does a lot of trade with China — can export its resources to China without a FIPA treaty, why on Earth do we need one?

Trade expert Lawrence Herman

Another critic is Lawrence Herman who is a senior fellow of the C.D. Howe Institute. He says:

A concern I have is that these arbitration decisions are rendered by ad hoc tribunals, appointed for a given dispute only. … Yet these impermanent tribunals are often deciding issues of social or economic policy of national importance.
Australia – a country that shares many interests with Canada – now says it will no longer sign such investment protection agreements, arguing that if Australian businesses are concerned about sovereign risk in other countries, they should make their own assessments about whether they want to invest in those places.

Crybaby Capitalism

Why do free-market economists demand a social safety net for businessmen who want to move their businesses to China? Talk about hypocrisy!

What does Canada have to gain?

Gordon’s logic behind FIPA is not at all assuring. He says because we have a massive trade deficit with China — buying a lot more goods from them then they buy from us — we have to let them buy up Canadian assets to balance things out:

Capital flows are the obverse side of trade flows. It makes no sense to claim to be in favour of international trade but against international flows of capital. …
As it happens, Canada runs a fairly large trade deficit with China: roughly $30 billion per year. This means that as far as China is concerned, trade with Canada is essentially a matter of them accumulating large amounts of Canadian assets.

Wow that sounds like an appealing offer! No wonder Harper tried to bury the announcement!

Germany

Germany recently raised concerns about investor-protection rules in the Canadian-Europe Trade Agreement (CETA.) If Germany doesn’t trust Canadian businessmen with these kind of powers, why would we trust a totalitarian superpower with them?

Tuesday, September 23, 2014

Trudeau: bigger, badder EI tax cut

When Stephen Harper recently announced an EI tax cut for small businesses, did Justin Trudeau demand that Harper reverse his draconian cuts to EI benefits instead?

Considering the Liberals have a petition called Stop Harper’s cuts to Employment Insurance, that’s what one would’ve expected.

Bigger, badder tax cut

But Trudeau actually criticized Harper for not going far enough and put forward his own bigger, badder EI tax cut that would let corporations in on the action (which aleady receive a $15-billion-a-year tax cut thanks to Harper.)

Not only is Trudeau blowing the small EI fund surplus on another trickle-down tax cut, he’s cementing in place Harper’s harsh cuts that destroy the social safety net.

Bad Math

As the Progressive Economics Forum points out, Trudeau’s plan rests on bad math. Trudeau says his tax cut will “create” 176,000 jobs and cost $225-million. But these jobs are expected to be created with or without any tax cut.

Trudeau says Harper's trickle-down tax cut doesn't go far enough.

Not only that, it’s difficult to determine what businesses create a "net new job." So the number of businesses trying to claim the tax cut could cause costs to spiral out of control.

Cheating workers

The Liberals and Conservatives have turned Canada’s unemployment insurance program into a tax on poor workers who are forced to pay for premiums on benefits they’re ineligible to receive.

The coverage rate has fallen to an appalling 36% of those who pay in!

Bad History

The EI benefit cuts began in the early 1990s when the Liberals came in power.

A massive recession in 1991 caused the unemployment rate to spike which caused a deficit in the "EI" fund (previously called UI.)

This “crisis” was turned into an opportunity to slash benefits based on the neoliberal principle that a strong safety net discourages people from looking for work.

By disqualifying workers and slashing benefits, the EI fund ballooned to $54-billion by 2008. Both the Liberals and Conservatives used the surplus to pay down government debt — essentially stealing over $50-billion from workers.

Conclusion

We need an alternative to Harper. Not a prettier version of Harper.

We need someone willing to stand up for Canadians and the social safety net. Not tear it down to award wealthy investors and businessmen more free-money tax cuts that never create jobs.

Saturday, June 14, 2014

Partisan hypocrisy shows why voting reform is doomed

When Harper won a fake majority on 39.6% of the vote, many Liberals claimed it was an outrage and affront to democracy. Now that Wynne won one on 38.7%, they say she earned a mandate from the people.

Partisan corruption

Major party partisans will always be opposed to voting reform — including the NDP in provinces where they are a major party — because they care more about winning than what’s best for the people.

They will gladly sit on the sidelines while a neo-con party destroys the place, just as long as they get their turn at absolute corrupt power.

Federal Liberal about about face

Take for example the federal Liberal party which fell to minor party status in 2011. Traditionally supporters of First-Past-the-Post, they embraced ranked ballot voting reform wile licking their wounds.

But as soon as they rose to first place in the polls, they predictably ditched their commitment.

The death march of democracy

Now if Trudeau wins in 2015, he will destroy electoral reform for good in Canada with another designed-to-fail PR referendum that killed voting reform in BC, Ontario & PEI.

With an impossible 60% win threshold and a ballot that excludes ranked ballot supporters, the Second Coming has better odds of success.

This farce will drive the final nail in the electoral-reform coffin making corrupt First-Past-the-Post the democratic choice of Canadians.

Conclusion

Democracy in Canada is an insane asylum.

We award absolute corrupt power to minority parties, excluding the actual majority from government. We are stuck wih some other country’s monarch as our head of state. We have an appointed senate filled with partisan hacks that has equal power to the democratic house. We have a corrupt fourth estate owned by corporations that abandons journalistic objectivity to meddle and campaign in general elections.

Getting involed with our slipshod implement of democracy is the equivalent of going to a Christian Fundie holy-roller church service. Either you check your brains at the door or are rendered incredulous by the spectacle.

Liberals didn’t fool progressive or centrist voters

This election in Ontario, the Liberal party’s campaign strategy was to out-left the NDP and win the majority they missed by one seat in 2011. They did this with a bullshit progressive budget and outrageous attacks against NDP leader Andrea Horwath claiming she was a right-wing Rob Ford clone.

Ironically, it was a 4 point drop from the Tim Hudak PCs that allowed Kathleen Wynne to win a fake majority on 38.7% of the vote.

Progressives not fooled

None of the right-wing crap the Liberals threw at Andrea Horwath actually stuck. Which just goes to show the more desperate the rhetoric the less likely the public is going to be deceived by it, regardless of the volume.

Andrea’s NDP made a 1 point gain from the 2011 election. That’s 42% higher than previous NDP leader Howard Hampton was able to take things — and double the seats.

So Liberals didn’t fool progressive or centrist voters — despite the Toronto Star pumping out daily op-eds of ethically-bankrupt propaganda.

It would seem the tabloid journalism of Sun News and The Star only ends up preaching to the choir.

NDP on right track

Despite our absurd voting system that awards absolute power to a minority party on less than 40% of the vote, Andrea is clearly on the right track.

Jack Layton forged the new NDP which unites left-leaning and centrist voters to stop the neo-liberal agenda being perpetrated by the Con and Liberal parties over the past 2 to 3 decades.

Despite complaints from the odd left-wing ideologue and Liberals pretending to be progressives, this path is clearly the right way forward.

Where Andrea went wrong

Jack Latyon ran the perfect campaign. His campaign ads showed, in a light-hearted way, that the Liberals were just another version of the Conservative party. But he also offered a positive vision for Canadians.

This election Andrea focused too much on Liberal corruption and mismanagement, and not enough on her own vision for Ontarians.

Pocketbook populism

Jack Layton’s pocket-book populism is the key to the NDP forming the government and ending 30 years of Tough Tory Times.

It gives everyone a break, but the lowest-income group gets the biggest relative benefit. Contrast this to Conservative and Liberal tax cuts (which they either implement or cement in place.) They give the rich the biggest benefit while the little people are gouged to pay for them.

So the best way to reach out to the 99% of voters is to push affordability and tax fairness and make sure the message gets out loud and clear.

Even right-leaning voters can go for this, which helps split the right-vote keeping the neo-con party from power. (The neo-cons being the Liberals in a hurry to destroy the Just Society centrist liberals and social democrats built up in the post-WW2 era.)

Thursday, June 12, 2014

Everything you wanted to know about politics, but didn't care enough to ask

Here are a few political observations I have made over the years:

Politics and sports

Politics and sports are colossal wastes of time. But people seem to enjoy the latter.

Politics and sports are similar: everything’s about your team winning.

If your team wins you either pretend good is being done, or wait until your team is back in the playoffs and assume good was being done.

If your team does wrong, it’s no big deal. If the other team does wrong, it’s an inexcusable outrage.

In politics you would rather believe black is white than believe your team is wrong for having chose black.

When your team loses you know what you have lost. When your team wins you’re never sure what you’ve won.

Society

If you are one of the sheep, self interest is evil. If you are one of the shepherds, self interest is a privilege.

Anything good for the people is a bad idea. Anything bad for the people is “for the greater good.”

When pain is meted out to the people “for the good of society,” money is meted out — for the good of the wealthy.

Elections

When democracy is a horse race the only ones represented are those who own the horses.

In Canada an arbitrary minority party is awarded all the power. The actual majority of voters ends up opposing the government.

National politics is like high school politics — depressingly primitive but without the faint hope of sex.

People who are lazy and apathetic about politics are dumb. Prominent campaign issues are even dumber.

The more people gather together, the lower their collective IQ. During an election campaign, it falls to the level of dumb beast.

An election campaign consists of different teams trying to coax a dumb beast to their side of the pen. The beast doesn’t understand the issues. The coaxers are too intent on coaxing to care about the issues.

The platform of the winning team often becomes a forgotten footnote of the previous election.

Ethics

The role of the progressive is to sit on the sidelines complaining about regressives destroying the country.

Politicians are narcissists. Political junkies get stuck with the least satisfying form of addiction.

Journalists would make good mobsters. There is nothing they can’t rationalize.

Politicians discard their values and principles for a stab at power. Journalists discard theirs for a paycheck.

Economics

Free market ideology is like a disease. It’s also touted as the cure.

Economics is dismal, but it doesn’t remotely resemble a science.

Economics is pre-Copernican: economists can’t agree on whether the Earth revolves around the Sun, or the Sun around the Earth.

Economics is politics with math thrown in to lend authority to political agendas.