US economic policy: bad ideas galore!

What with all the insults, threats and bizarre assassination attempts. one aspect of the ongoing US Presidential election campaign is going largely unnoticed.  Both candidates are wheeling out some of the most ridiculous economic policy proposals in living memory.  Here are just a few.

The biggest and potentially most damaging proposal is Donald Trump's pledge to impose tariffs on just about everything the US imports, with a view to reducing income taxes. It's clear that his Wharton degree did not equip him to understand how tariffs work.  He believes that any tariffs he introduces would be paid by foreign countries. It does not seem to occur to him that either (a) the tariffs would be passed on to US consumers, thus rapidly pushing up inflation, or (b) countries and companies would simply stop shipping their products to the US, in which case the tariffs would not produce any revenue and the shelves at WalMart and just about everywhere else would rapidly empty.

What's worse, it's impossible to imagine that foreign countries would not react to Trump's tariffs by retaliating with their own tariffs on American exports. As the experience of the 1930s showed, that's a recipe for a global recession, or worse -- and the global economy is much more closely integrated now than it was in the 1930s.

Sticking with Trump for the moment, his latest genius idea is to exempt all overtime earnings from income tax. He affects to believe that this would promote and reward hard work, but the likely consequence is surely the exact opposite.  How many tasks that workers are currently able to accomplish in a 40-hour work week would suddenly start to consume more time, compelling employers to pay overtime? How many new jobs might never be created as existing workers start to demand overtime rather than allowing the employer to add new workers?  And how would this be implemented for salaried workers, many of whom routinely work more than forty hours a week? (Asking for a friend on that last one, obviously).

Let's give Kamala Harris a look-in here. One of her off-the-wall proposals is to introduce taxation of unrealized capital gains. Now, it's clear enough that the immense book wealth of the Musks and Zuckerbergs of this world is a very tempting target for revenue-hungry politicians, but is this really a workable idea? The nature of unrealized gains is that you don't have the cash on hand to pay the tax.  Do you sell assets to pay it, in which case you now have a realized capital gain anyway? Or do you borrow the money, thereby making your balance sheet more risky? 

Does the unrealized capital gains tax apply at all income levels, in which case the impact on small to medium sized entrepreneurship is likely to be severe? Or does it only apply above a certain cutoff point, which no doubt triggers all manner of accounting shenanigans?  And what happens if, after you pay the tax on unrealized gains, you run into a period of losses?  Do you get your money back?

Lastly there's a silly idea that both candidates have embraced: removing income tax on tips.  I blogged about this one back on August 13, so allow me to quote myself: 

Basically, the case not to do this comes down to the good old Law of Unintended Consequences.  One: eliminating taxation on tips directly reduces any incentive for employers to pay their staff a living wage. Two: in all likelihood it reduces the percentage that customers actually tip -- "hey, I've paid tax on this money that I'm tipping you, but you won't be paying tax on it, so it's only fair that I give you less, right?" Three: eliminating taxation on tips creates incentives for smart people to structure their compensation in order to take advantage. Ready to start tipping your investment broker? Just give it time. 

Heck, not just your investment broker.  Your realtor just lowered his fee from 6 percent to 4 percent, but the sales agreement now includes a provision for a 2 percent tip, and that tip is, of course, mandatory.

This is a scary list of dumb ideas, and I'm sure there are quite a few more that I've missed.  We can assume that most of them will never be heard of again after November 5, but the very fact that the candidates are even thinking on these lines is pretty worrisome. 

Hey Kamala and Donald -- here's a tip for ya!

If there's one thing you could probably get most Americans to agree on (and most Canadians too, but that's not relevant here), it's that tipping culture is completely out of hand. Pre-programmed tip amounts on payment devices in restaurants are going ever higher, with most now using 18 percent as a starting point; tip-shaming supposed cheapskates is rising, amid suggestions online that anything less than 28 percent is now entirely unacceptable; and the demand for tips is spreading into more and more workplaces, including some where actual contact between customer and employee is minimal. It's one malign consequence of the pandemic years that shows no sign of abating any time soon.

Now we have both major candidates for the Presidency saying they want to exempt tip income from taxation. Donald Trump suggested it first, but now Kamala Harris is touting the same idea.  And while it may play well on the campaign trail, from any public policy standpoint it's a truly terrible idea.

This article from CNN spells out many of the reasons why that's the case. Basically, the case not to do this comes down to the good old Law of Unintended Consequences.  One: eliminating taxation on tips directly reduces any incentive for employers to pay their staff a living wage. Two: in all likelihood it reduces the percentage that customers actually tip -- "hey, I've paid tax on this money that I'm tipping you, but you won't be paying tax on it, so it's only fair that I give you less, right?" Three: eliminating taxation on tips creates incentives for smart people to structure their compensation in order to take advantage. Ready to start tipping your investment broker? Just give it time. 

Alongside all of these potential downsides, there's the uncomfortable fact that most employees currently in receipt of tips don't earn enough to pay Federal taxes anyway, so there's very little point to all this. Any change in the taxation of tips would require the approval of Congress. The Presidential candidates may ride this dumbass idea right through election day, but it seems unlikely it will ever be implemented.  

The Daily Telegraph has lost its mind

Actual headlines from the online front page of the London Daily Telegraph, June 13:

• Starmer's first year could be his critics' worst nightmare: a success.
• The people will rise up against Labour's bonkers left-wing agenda.
• Nigel Farage is the Prince Harry of politics, only with cunning.
• The most dangerous part of Labour's manifesto is the bit no-one will read.
• Things can only get smugger as Keir's rock stars take the stage.
• Britain is heading for a populist tsunami far greater than anything seen in Europe.
• Labour is about to give middle England a simple choice: emigrate or give up.
• Keir Starmer is more dangerous than Blair ever was.
• Keir Starmer will destroy England's countryside. Only the Tories can save the Green Belt. 

I really wish I was making these up, Private Eye style, but these are all real, and there will be a similar crop of hatred and nonsense every day* until election day. This is not borderline insanity -- it goes way beyond that. 

* UPDATE, June 14: Just in case you needed further evidence, today's Telegraph brings us this new gem: "Britain still doesn't have a clue about the scale of the disaster heading its way". 

It's not the economy, stupid

Back when Bill Clinton was running for re-election as President, he famously had a big sign on his desk that read "it's the economy, stupid". It was there to remind him and his campaign team that pocketbook issues were all-important to the electorate.

Clinton's mantra doesn't seem to hold up any more. There are elections coming fairly soon in three countries that I follow quite closely: the UK in July, the US in November, and Canada on a date yet to be announced, but likely some time in the next twelve months.  The incumbents in all three countries seem very likely to be defeated, even though their economies seem to be doing tolerably well.

Consider. In the UK, the economy has finally emerged from recession and may actually be growing faster than near neighbours such as Germany. Inflation has dropped sharply. It's true that the economy is smaller than it would have been in the absence of Brexit, but given the short memories of most voters, that ought not to count for much any more. In the US, a remarkably high percentage of voters believe the economy is in recession, which is very far from the truth. Inflation is well down from its cyclical peak, though it is starting to look a bit sticky, and unemployment is very low. The fiscal situation is a mess, but when did voters ever care about that? And in Canada, despite the negative tone of much media coverage over the past year, the economy has stayed out of recession. Inflation has come down to the Bank of Canada's target range, likely setting the stage for an interest rate cut as early as next week.

What has changed since Clinton's day?  A few thoughts come to mind. The first is that perceptions of what constitutes a "good" economy have evolved. In Clinton's day it was still common to hear talk of the "misery index", calculated by adding the inflation and unemployment rates together. Evidently that no longer works.  After a couple of decades of persistently low inflation, the surge in prices that resulted mainly from the COVID pandemic was an entirely new experience for much of the electorate, and they didn't much like it. It's true that unemployment briefly spiked higher during COVID, but it's worth keeping in mind that even in a very weak economy, unemployment may only affect 10 percent of the population, whereas inflation is felt by everyone. 

Then there's the change in the availability of information. The days when media outlets employed full-time business reporters who could accurately convey economic data to the public are largely gone.  Looking at inflation again, it would be hard to find an economics writer at most newspapers today who could accurately describe the difference between disinflation (which most countries now have) and deflation (which they don't, and in truth really don't want). News obtained from social media sites is even worse: there seems to be a small army of people out there who see it as their mission to peddle as much disinformation about the state of the economy (and of the world in general) as they possibly can. 

Another aspect of the explosion of social media is the increased polarization of the electorate. Traditional media certainly hosted a wide range of opinions, but the tone was generally respectful and tolerant. Those are not words that can be used to describe the discourse on social media, where innumerable people hide behind their anonymity to post views that would clearly have attracted lawsuits in gentler times. The belligerent tone of social media has, perhaps inevitably, spilled back onto the traditional outlets. Take a look some time at the home page of the London Daily Telegraph -- the paper's columnists are in a scarcely concealed state of rage at the state they perceive the country to be in, and the cataclysm that awaits if the voters are foolish enough to vote Labour in July. (Do yourself a favour and don't read any of the actual articles).

As things stand, it looks as if Messrs Sunak, Biden and Trudeau will all be lined up at the unemployment office the day after voting day, despite the healthy-ish economies they oversee. It's not as if their likely replacements are at all inspiring -- in the UK, Keir Starmer is dull and unambitious; in the US, well, nothing to add here; and in Canada, Pierre Poilievre is a shrill right-winger with no real-world experience to speak of. In all three countries, it looks like change for change's sake is what the voters want. 

There is no bottom

Back in July 2019, when Boris Johnson was about to take up residence at 10 Downing Street, the excellent London blogger known as Diamond Geezer wrote that "Britain's worst-ever Prime Minister, who took over from Britain's worst-ever Prime Minister, will shortly be replaced by Britain's worst ever Prime Minister".  It's a good line, but it turns out that DG didn't know the half of it.  The UK has had two more worst-evers since Johnson left the scene, and the Tory party assembly line keeps throwing up ever more unsuitable candidates for the job.

Let's take them in order, starting with those DG was referring to:

First, from 2010 to 2018, was David Cameron.  He began his tenure by imposing austerity in response to the global financial crisis, which was, of course, exactly the wrong policy response.  Then, to appease his right-wing fringe, he promised a referendum om "Brexit".  He never thought the UK would vote to leave the EU and campaigned in a very desultory fashion for a "remain" vote.  When the leave side won the day, Cameron hightailed it out of office.

Cameron was succeeded by Theresa May, the UK's second female PM.  She held office from July 2015 to July 2019.  With the die cast for Brexit, she struggled mightily to appease the party's right wing while negotiating a deal that might actually work.  Two no-confidence votes later, she resigned after a draft agreement with the EU was rejected by Parliament.

Up next was Boris Johnson, who had worked hard behind the scenes to oust Theresa May. Once in office, he managed to ram through a Brexit deal he described as "oven ready", even though it has since proved to be nothing of the sort. He held office from July 2019 to September 2022.  The last two-and-a-half years were dominated by the COVID crisis, which was hardly Johnson's fault but did eventually trigger his demise.  He was ousted after it was shown that he had misled Parliament about a series of boozy parties held by his staff on Government premises while the whole UK was supposedly under a COVID lockdown. 

Here we move beyond DG's little list, to find Liz Truss replacing BoJo.  The less said of her tenure the better, and it's easy not to say much because she was only around for seven weeks.  An ideologically-committed  right-winger who seemed incapable of listening to advice, she nearly wrecked the UK's financial markets and resigned after losing an endurance test against a lettuce.

Next up was the current incumbent, Rishi Sunak, who is just coming up on a full year in office. Sunak is the UK's first Hindu PM, which is doubtless not a bad thing, but also the richest person to hold the office in modern times, which is probably not a good thing. In truth, Sunak has not pulled any of the dumb moves that characterized his predecessors on this list, but he has never won the full support of the more right-wing members of his party, and trails badly in opinion polls despite the lackluster performance of Labour leader Sir Keir Starmer. 

As and when the party decides to oust Sunak -- most likely after he loses a general election late next year -- the most likely replacement is Suella Braverman, current Home Secretary.  The anti-immigration crowd's favourite immigrant, the strident Braverman is the brains, if that's the word, behind the Government's bizarre and probably illegal scheme to relocate illegal migrants to the tiny, landlocked African nation of Rwanda. 

And lurking behind Suella is the worst of them all, the irrepressible, bibulous populist Nigel Farage. Despite not actually being a member of the Tory party, Farage contrived to dominate its recent annual conference, spouting the usual river of bile about...well, mostly about immigrants, actually, as is always the case when someone puts a microphone in front of his leering face.  It's hard to spot anyone worse than Farage looking to take over the party after him, but given the Tories' recent track record in selecting leaders, you wouldn't put it past them to find someone even worse when the time comes. 

RyanAirbnb

In this week's biggest news, we stayed at a hotel for the first time since the pandemic began. Times have certainly changed -- when we made our booking we were amazed to learn that our 3/4 star hotel in a major tourist area did not provide maid service during your stay. Re-use your towels, make your own bed!

I think you can trace this sort of thing back to the impact of low-cost airlines such as Ryanair, Southwest or Allegiant. Low prices, but also rock-bottom customer service, and in the case of Ryanair (I don't know about the others) a sizeable dollop of outright contempt for the paying customer. The ultra-low cost base of these carriers, coupled with people's natural lust for a bargain, has meant that "legacy" or full-service airlines have had to price match as much as they can, which means that service standards have inevitably converged toward the Ryanair level. My own worst-ever flying experience was not on Ryanair (which I have used several times) but on a Toronto-Miami trip with Air Canada's low-cost (not!) "Rouge" division.

If my recent hotel experience is in anyway typical, it seems as if the same sort of thing is happening in the hospitality sector. The rise of Airbnb has persuaded a lot of people to abandon traditional hotels, which in turn has forced those hotels to cut prices and service standards in order to remain competitive. My sister is an avid Airbnb fan; when she and her family came to stay with us a few years ago, we were startled to find that at the end of their stay, they stripped all the bed linen from the beds to be ready for laundry.  Apparently this is standard practice at Airbnb: who knew?

It seems as if the bloom is off the rose at Airbnb. Rapacious "hosts" have pushed prices and fees too high while still offering abysmal service.  Municipalities (with New York in the forefront) have realized that Airbnb is trashing their rental accommodation market and begun a belated crackdown. Airbnb may well have passed its peak, which is a good thing -- it's a global blight.  So far, however, there is no sign of the same happening at Ryanair and its ilk, which seem to go from strength to strength despite concerns over their impact on the climate. .  

Five Eyes and Nazis

This has not been a good couple of weeks for the Justin Trudeau government....

Trudeau's visit to the G20 summit in New Delhi in mid-September seemed unusually tense. He spent very little time with his host, India PM Narendra Modi, skipped one of the formal functions and then got stranded in India for two days because his geriatric official aircraft needed emergency repairs. 

Soon after Trudeau's return to Canada, the reason for the coldness of his welcome in India became clear. Trudeau rose in the House of Commons to announce that Canada had intelligence connecting the government of India to the assassination in British Columbia of a prominent Sikh activist who favoured establishment of a separate Sikh state, "Khalistan". Unsurprisingly India did not react well, denying the allegation outright and launching a series of tit-for-tat measures that shows no signs of ending any time soon. 

Here's the thing: it now looks as though the intelligence on which Trudeau is relying was not provided by the Canadian security agency CSIS.  Rather, it came from an unidentified member of the "Five Eyes" intelligence sharing alliance. (In my long-ago diplomatic service days, Five Eyes was usually referred to in documents as "AUSCANZUKUS", which I expect the reader can figure out quickly enough).  Since it was the US ambassador to Canada that revealed this fact, the best guess is that the US actually originated the intelligence.

Whether or not that is the case, the near-silence of the other Five Eyes countries in supporting Trudeau here is remarkable, and highly chastening for a leader whose first public statement to the international community on being elected in 2015 was "Canada's back".  Back it may be; as important as India, it evidently is not. Nobody looks good here.  India is under a cloud of suspicion; CSIS has apparently been shown to be unable to monitor suspicious activities of foreign nationals within Canada's borders; Trudeau has gone out on a limb using intelligence that he probably cannot independently verify and has so far declined to make public; and the Five Eyes "allies" are letting Trudeau and Canada twist in the wind out of fear of offending Modi. 

While all this was unfolding, Canada received a visit from the peripatetic Ukrainian leader Volodymyr Zelensky, who followed up a speech at the UN General Assembly with meetings in Ottawa and Toronto.  In Ottawa, Zelensky addressed Parliament, and an array of prominent Ukrainian-Canadians were invited to attend.  One of these was a 98-year old WW2 veteran, Yaroslav Hunka, who received a personal ovation from the politicians and the rest of the assembled crowd as it was announced that he had fought against the Russians during the war. It does not seem to have occurred to anyone, but it came out soon enough, that those Ukrainians who fought the Russians back then were fighting alongside the Nazis -- and indeed, Hunka was not just a common-or-garden Nazi, but a full-fledged member of the Waffen SS. 

Cue outrage from all sides: the opposition parties in Parliament, of course, the Jewish community, and even the Kremlin, which surely took delight in this confirmation of its contention that the purpose of its "special military operation" in Ukraine was to de-Nazify the country. The search for a fall guy ramped up fast, with House of Commons Speaker Anthony Rota appearing to take full responsibility for the gaffe. Hurta lives in the riding represented by Rota, so that may indeed has been the source of the initial invitation.  But Hurta was granted a face-to-face meeting with Zelensky and Trudeau; given the level of security that surrounds both men, it is hard to believe that nobody looked into Hurta's past before approving his presence -- unless this is yet more evidence of the incompetence of CSIS.

And meanwhile on the domestic front, housing crises, mounting concern over immigration levels and anger over rising food prices continue to poison public opinion.  Any impression that Trudeau is in control of events vanished long ago; even he may soon realize that the only way to reset the agenda here is to call an election -- and if he prayed to be defeated, you could hardly blame him. 

The Hunter hunted

I don't normally comment on US politics here, unless it's relevant to something I'm writing about the US economy.  As a non-American I am cautious talking about a system of governance I still find hard to fathom, even though living just five miles from the border gives me a ringside seat. 

However, I just want to put down a few thoughts about the situation surrounding Hunter Biden.  It's striking to see the lengths to which CNN, in particular, is going in an effort to play down this feckless dolt's multitudinous transgressions and to minimize the possibility of any of this incriminating President Biden, even while admitting that there is plenty that just doesn't smell right.

The Biden camp admits that Joe Biden, while serving as Vice-President to Barack Obama, took part in phone calls with various actual or prospective business associates of Hunter. Yet supposedly, no business was ever discussed in these calls.  This stretches credibility an awfully long way, but let's assume for a second it's true. All that was discussed in these calls was the weather and the latest NFL odds.  

If that was indeed the case, what was the purpose of the calls?  It can only be an attempt by Hunter to use his father's exalted position to boost his own business prospects.  That's called influence peddling, and it worked: Hunter was paid a fat stipend to lend his name to a Ukrainian oil company, even though he likely could never have found Ukraine on a map and wouldn't know crude oil from Oil of Olay. 

If this was all indeed "only" influence peddling, what does that say about Joe Biden?  Shouldn't a man of his experience and in his exalted position have realized that this was a very ill-advised, indeed dumb thing to do?  It shouldn't take the wisdom of Solomon for Joe Biden to know that if any of this came out, it would make him look corrupt or at least stupid, neither of which is a good look for the most powerful man in the world.

Coming back to CNN for just a second, their take on the Republicans making so much of Hunter's problems and threatening to impeach President Biden is that it's just a ploy to divert attention from Donald Trump's mounting array of legal issues.  But you could equally look at it the other way round: it's only Trump's innumerable transgressions that make it possible for the Democrats to try to sweep the Biden family's issues under the rug. 

We didn't start the fires

......but we can certainly manipulate the story for political advantage. Everybody's doing it!

Predictably, climate change activists are blaming the extremely active fire season in the Northern Hemisphere (Alberta!  BC!! Quebec!!! Yellowknife!!!! Hawaii!!!!! Tenerife!!!!!!) on climate change. Serious scientists are careful not to say climate change is the direct cause of these extreme weather events, but journalists are not so scrupulous. I actually heard one talking head this past weekend lumping the Ventura county earthquake in with Hurricane Hillary as a symptom of climate change.

On the other side of the spectrum, climate change deniers are taking equally extreme positions. A favourite argument is that the exceptionally high number of wildfires this year is mainly down to arson.  Every year there are fires that are directly caused by humans, either campers being careless with the matches or actual arsonists.  The added spice this year is that it is now apparently necessary to blame someone specific, and the bigger the culprit, the better the story.  Here in Canada I have seen it asserted, without a shred of evidence, that "climate vigilantes" have been setting fires on the direct orders of Justin Trudeau and/or the World Economic Forum. 

Let's just think about the logistics of this tsunami of arson for a second. The reason many of the fires in northern Quebec were allowed to just burn themselves out is that they happened in areas so remote that firefighters could not gain access to them. Yet we are apparently supposed to believe that arsonists were able to move freely about in these inaccessible regions, setting fire after fire and making it home safely to tell the tale. I don't think so. 

We may be able to exonerate Justin Trudeau from any direct involvement in setting the fires, but that doesn't mean he is not heavily involved in all this. His heart-on-sleeve "green" government is naturally playing up the role of climate change in all this (and completely downplaying any impact from arson).  But Trudeau is also seizing the opportunity to advance another part of his agenda: his battle to shake down Meta and Google to force them to bail out Canada's struggling legacy media, through an Act of Parliament known as Bill C-18.

Bill C-18 requires companies like Google and Meta to pay for any links they provide to Canadian news media. Meta has responded more robustly than Google, complying with the letter of the law -- though not its intent -- by removing such links from its websites.  The Government is furious, even though anyone with half a brain (and even some experts) tried hard to warn them this would happen.

Trudeau has glommed onto the opportunity provided by the forest fires, most notably those burning around Yellowknife, to lambast Meta for putting Canadians' lives at risk by depriving them of access to fast-breaking news.  Two points here: first, my own very informal and unscientific survey suggests that virtually no-one actually relied on Meta platforms for access to news sources.  Second, Trudeau has  apparently not found it necessary to suggest to the media that they might remove their own paywalls for the duration of the crisis. So even if you still had access to, say, the Toronto Star via Facebook, you still wouldn't be able to read anything beyond the headline: the paywall would keep the actual content from you. Well thought through there, Justin. 

Ontario budget: almost a non-event

After the fiscal ructions created by the COVID pandemic, the Ontario budget tabled on Thursday by Ontario Finance Minister Peter Bethlenfalvy represents a return to business as usual. In common with Provinces across Canada, Ontario is seeing a rapid and substantial improvement in its fiscal position, driven by the expiry of COVID-related spending programs and by inflation-driven revenue gains.

Even a quick glance at the bottom line -- the deficit projections -- makes the remarkable extent of the fiscal turnaround crystal clear. A year ago, the Government was projecting a deficit for the 2022/23 fiscal year of C$ 19.9 billion. With the end of that fiscal year now just days away, the actual outcome is now expected to be a deficit of just C$ 2.2 billion.  The improvement is expected to continue over the three-year planning horizon, with FY 2023/34 expected to show a deficit of C$ 1.3 billion (previous projection: C$ 12.3 billion), giving way to small surpluses in the two succeeding years, which had previously been forecast to show further deficits. If achieved, this outcome will of course set the Ford government up nicely for a giveaway budget ahead of the next Provincial election, expected in 2026.

The economic projections underlying the fiscal projections appear reasonable and are, in the usual way of things these days, based on private sector forecasts.  Provincial real GDP is expected to grow  marginally this year and to accelerate only modestly in the next two years, while inflation is projected to fall to 3.6 percent this year and decline to just above the Bank of Canada's target of 2 percent next year.

Although the budget trumpets the Government's plans to invest in key areas such as infrastructure and health care -- "the most ambitious capital plan in Ontario's history" --  spending growth over the planning period will be very limited. The dollar value of program spending for FY 2023/24 year will be almost unchanged from FY 2022/23, with the expiry of COVID programs making a direct comparison difficult.  For the remaining two years of the forecast period, nominal spending growth will be barely 3 percent, which implies minimal growth in real terms. 

There is one significant item absent from the spending plan that will bear careful watching over the coming weeks and months. The City of Toronto, by far the largest in Ontario and in all of Canada, has been appallingly mismanaged over the past eight years by now-disgraced former Mayor John Tory.  City services are collapsing (sadly not an exaggeration) and despite regularly holding out the begging bowl, the city cannot pay its bills. 

Before his ignominious departure, Tory had pleaded for more than C$ 500 million from the Province in order to balance the books. The budget did not even mention this.  Questioned about the issue, Bethlenfalvy suggested Ontario was waiting to see what help the Federal government might offer when it tables its own budget next week. Perhaps so, but it is equally likely that Ford is waiting to see whether he likes the cut of the new Mayor's jib before deciding how much help to provide; since the mayoral election will not take place until June, the city may be left twisting in the wind for some time to come. 

On, then, to that Federal budget. Will the Federal coffers show a similar revenue boost to that revealed by Bethlenfalvy yesterday? That seems very likely. Will Finance Minister Chrystia Freeland show as much spending restraint as Bethlenfalvy has? That seems much less certain. Tune in on March 28 to find out. 

Who cares who cares?

The summer months have seen Ontario media crammed with stories about the supposed collapse of the Province's healthcare system.  A vanishingly small number of short-term emergency room shutdowns has been offered as evidence that the entire system is "on the brink".  An unholy alliance has sprung up almost overnight. Commentators on the left, led of course by the Toronto Star,  argue that the fault lies with the Doug Ford government, while those on the right want to see further privatization in order to ease pressure on the system.

As it happens, yours truly has had lots of exposure to the health care system in the last two months, as my wife has received a hip replacement.  There have been countless visits to hospitals, diagnostic centres, physios and such. There have been no issues at any stage of the process, and no signs of the burnout, staff morale problems and all the rest of it that we read about every single day.  It's dangerous to generalize from a single example, but if our experience in our very unfashionable small city is anything to go by, the health system remains resilient.

It's worth pointing out that the Ontario health system is by no means exclusively a public sector operation. Hospitals are public, but there is no public dental care whatsoever, eye care is a mixture of public and private, there is no pharmacare except for seniors and most diagnostic centres (blood tests and such) are privately operated. Wall-to-wall TV ads offering insurance for "the things your public health plan doesn't cover" offer all the evidence you need that the system is already far from comprehensive.

Be that as it may, the Ford government is not about to let a good crisis go to waste, and today unveiled a multi-part plan to relieve the pressure on the system. One element of the plan calls for allowing private clinics to offer a wider range of procedures while making sure that costs are still covered by OHIP, the Province's health care plan.

It's not at all clear why this would be a better or lower-cost option than simply increasing funding for the public system. At the start of this century I spent more than a decade living in the UK, which has a mixed public and private health care system. I could write a whole post about this, but one observation that's relevant here is that the private sector goes after the low-hanging fruit. They'll schedule you for a hip replacement if it looks likely to be a simple procedure, but if there's any risk of complications they'll boot you back to the nearest public hospital before your ass hits the gurney.  

Supporters of greater private sector involvement in health care point to a variety of countries that have a blended system and deliver better outcomes than Canada at a lower cost; France and Spain are two regularly cited examples. Fair enough, but does anyone really believe that opening up the Ontario health system to private money would move us in that direction? Far more likely that an influx of money and methods from across the border to our south would push up costs and rapidly erode the equal access that we currently enjoy. I'll take a pass, thanks.

Ford drives on

I haven't bothered until now to post anything about the Ontario Provincial election campaign, which ended yesterday with a thumping victory for the Conservatives and their lumpen leader, Doug Ford. The election campaign was marked by a profound lack of engagement on the part of the electorate, which was duly reflected in a 43 percent turnout at the polls, by far the lowest ever. There seemed to be little reason to inflict any of this of the faithful readers of this blog. 

By and large the media don't much like Doug Ford. He's not one for making public appearances all over the place in order to maintain a high profile with the voters. He campaigned much less actively than his opponents this time out, and yet still managed to increase both his party's share of the vote and its representation in the Provincial legislature at Queen's Park.

The sour grapes in the media began even before the votes were tallied, because it was very obvious early on that neither the Liberals nor the New Democrats were going to lay a glove on the Tories.  Pundits suggested the public indifference to the whole event was playing into Ford's hands, but isn't that kind of missing the point? It's rarely if ever up to the incumbent government to inject excitement into an election campaign. The incumbent will always be judged primarily on its track record. It's up to the opposition parties to get the fireworks going, and the ultra-low turnout yesterday shows that they entirely failed to do so.

The leaders of the two largest opposition parties have already paid the price of failure, with both quitting even before all the votes were tallied. This was NDP leader Andrea Horwath's fourth election at the helm. Although her party retained its status as official opposition, she has chosen to make way for new blood, but given that she has been the face of the party since 2010, it may be hard to find a replacement with any kind of public profile. As for the Liberals, it says it all that their leader, Steven Del Duca, was not a member of the legislature before the election, and failed to win a riding he has lived in for many years. The party won so few seats that it will not have official party status going forward. There are unlikely to be many takers for the leadership.

We have to spend a moment to consider the role of the Toronto Star, Canada's highest-circulation newspaper, in all of this.  The Star hates all Tories but has a particularly strong animus for Doug Ford. When the COVID pandemic arrived, the Star chose to have one reporter -- Bruce Arthur, notionally a sports columnist -- focus on nothing but COVID, with a barely concealed mandate to blame absolutely everything on Ford. 

So much for that. Although there was plenty to criticize about how Ford handled COVID, it would be hard to argue that he did a worse job than anyone else in a similar position, and Bruce's incessant carping may well have turned a lot of people off.  In the wake of the election Bruce is calling for reform of Ontario's first past the post electoral system, in order to prevent the Tories from winning thumping majorities with only 40 percent of the vote.  Similar concerns were not often heard from the Star earlier in this century, when the Liberals racked up fifteen consecutive years in office. 

Four more years of Ford is not something we can look forward to. His team are mostly a graceless lot and some of his election pledges, notably an expensive and unnecessary new highway for the Greater Toronto area, are very bad indeed. But his success yesterday can have come as no surprise to anyone who had been paying attention. What's more, given the leadership vacuum on the Liberal and NDP benches, you would already make the Tories favourites for the 2026 election -- maybe under the leadership of Doug's nephew Michael, who was elected for the first time yesterday. 

Promises, promises

It has been clear for some time that the outcome of the Ontario provincial election, to be held on June 2, will depend on which party's extravagant promises the voters choose to believe. Doug Ford's governing Conservatives have been unveiling populist promises on almost a weekly basis since the start of the year. The most blatant bribe: removing the annual fee for renewing your car license plate -- and not just on a going-forward basis: you also got a cheque in the mail for whatever you had paid to renew for the last couple of years.  

On Thursday Provincial Finance Minister Peter Bethlenfalvy tabled the annual Provincial budget. Coming from a government that has stressed fiscal prudence, it's quite a shocker. The Tories are planning a major, multi-year increase in spending, with a focus on infrastructure. The capital spending program will total C$ 158.8 billion over ten years, with major spending on highways, public transit, hospitals and schools.  There will also be tax cuts targeted at seniors and low-income workers, the latter defined as individuals with an annual income below $50,000. 

Predictably, all of this is going to balloon the deficit. The shortfall for the 2021/22 fiscal year, which ended at the start of April, is estimated to have been $ 13.5 billion. Thanks to the economy's robust recovery from the worst of the pandemic, this is way lower than originally expected, and until yesterday the Province's own Financial Accountability Office was projecting a return to budget balance by FY 2023/24. So much for that: Bethlenfalvy's budget calls for a deficit of  $ 19.9 billion for the current fiscal year, falling to $12.3 billion in 2023/24 and continuing to fall gradually through mid-decade. 

Even before the government tabled its own budget, the leftish NDP had already started to unveil its own platform. It promises lower taxes for everyone earning less than $200,000 per year, which is the vast majority of Ontarians. This morning the Liberal leader, Steven DelDuca, was on the breakfast TV circuit making bad jokes and promising to remove sales tax on restaurant-prepared foods costing less than $ 20.  No doubt there will be more tasty treats in store as soon as the Liberals unveil their full platform. 

It's difficult to take any of this too seriously -- and that goes for Bethlenfalvy's budget just as much as the promises of the current opposition parties. The Provincial Legislature has now stood down to allow the election campaign to get started, so the budget is in effect nothing more than the Tories' election platform, and may well amount to nothing at all if Ford and his team are swept from office on June 2. As for the other parties' promises, those will as ever be hostage to the usual post-election wailing about how "the finances are in much worse shape than we thought, so alas we can't deliver all the goodies we promised".

Everyone is fatigued after two years of the pandemic, so it's perhaps no surprise to see the election shaping up this way. But how many of these promises see the light of day after June2 may be quite another matter. 

That's convenient!

Ontario's latest fiscal update was released on Valentine's Day, and went almost unnoticed amid everything portentous that's going on in Canada and around the world. That's a pity, because it looks as though the Province's dramatic fiscal improvement will be one of the key planks in the election platform for Doug Ford's Tories come the June election.

The Province's Finance Minister, my old Bay Street oppo Peter Bethlenfalvy, announced that the projected deficit for the 2021-2022 fiscal year (April-March) is now C$ 13.1 billion, $ 8.4 billion lower than the figure projected just three months ago in the mid-year update. The improved outlook is almost entirely the result of a $ 8 billion estimated improvement in Provincial revenues, itself a direct result of a better-than-expected rebound in the Provincial economy.

Bethlenfalvy is required to table a budget by March 31, and will no doubt delay until as close as possible to that date so as to maximize the positive impact on the Tory election campaign. The impact of the omicron COVID variant is not entirely captured by this week's data, but it is hard to imagine that Bethlenfalvy hasn't thought of that, and may indeed have kept some good news in reserve so as to announce an even better fiscal outcome on budget day.

So the main elements of the Tory election platform are falling into place.  Fiscal improvement? Check!  Removal of almost all health restrictions? Check!! Abolition of fees for annual renewal of auto license plates? Check!!! Doug Ford is a charmless boor, but it would be brave to bet against his winning another term, given the lackluster opposition he faces. 

Oil spill

According to the American Automobile Association (AAA), some 48 million American drivers will hit the highway over the next few days for Thanksgiving weekend. They'll be filling up the tank at the highest prices in seven years, averaging close to $3.50/gallon nationwide but considerably higher than that in some states, such as California. The real economy is doing just fine -- check out the remarkable jobless claims data released today -- but the rising cost of gasoline (and just about everything else) is top of mind for voters, and largely accounts for President Biden's plummeting approval ratings. 

So it's no surprise that the President wants to provide some relief at the pumps. There have been rumours going around for a while about a possible release of supplies from the Strategic Petroleum Reserve, and this has now come to pass. Over the next while, the US will release 50 million barrels of crude from the reserve, and has secured agreement from other countries, including China, the UK, Japan, and South Korea, to do the same thing, albeit on a much smaller scale.

To which one can only say: seriously, folks? Global oil production is somewhere in the area of 90-100 million barrels per day. (It peaked at 95 million in 2019, fell sharply in 2020 but is now presumably rising again as the global economy bounces back}.  It seems pretty far-fetched to imagine that releasing the equivalent of less than one day's production will stem the upward pressure on prices, let alone reverse it. 

Indeed, as numerous commentators have already pointed out, it could even have a perverse effect. OPEC (and OPEC+, which includes Russia) is understandably ecstatic at the way prices have moved this year. There is every possibility that these countries will react to Biden's move by limiting their own production, in order to keep prices where the are, or even boost them further. 

It's no real surprise that Biden feels the need to "do something" when this issue is so important to voters, and the mid-term election campaigns are about to ramp up. But empty gestures can be dangerous, and this gesture is about as empty as it gets. 

Ontario's pre-election budget update

 Ontario's Finance Minister, my former colleague Peter Bethlenfalvy, tabled the Province's customary Fall economic statement and budget update today. With a Provincial election coming in June 2022, there were widespread expectations that the update would include tax cuts for individuals and corporations, one promise from the last election that the Ford government has not yet delivered. As it turned out, the budget update was largely a rehash of the last full budget, which was tabled in March. Perhaps Ford and Bethlenfalvy are holding back the tax cuts for a real pre-election giveaway in the Spring.

The statement repeats promises to build a couple of new highways on the outskirts of Toronto, a vote-rich area that the Tories need to rely on to deliver them an electoral majority. There is some additional funding for the health care sector, including long-term care.  The Province is also preparing to scale back its COVID-specific funding, which will fall from more than C$ 10 billion this fiscal year to $3.4 billion in 2022-23 and zero the year after that. 

The one intriguing statistic in the report, and the one that may offer the Tories two distinct choices as they seek to win next year's vote, is the deficit projection. The shortfall for the current fiscal year (to March 2022) is now set at $21.5 billion, down from the $33 billion projected in the March budget. This is attributed in large measure to a rebound in tax revenues as the Provincial economy has recovered from the pandemic.

Come election time, the Tories can spin this as evidence that they are good economic managers and offer the voters more of the same if they are re-elected: this would certainly be the old-school Tory approach. Or they can say that their success in getting the deficit under control gives them room to introduce targeted tax cuts, bribing the electorate with its own money in the time-honoured way. The fact is, it's not a bad choice to have, if you're Doug Ford. He may not have been a great Premier for the Province, but come June the opposition parties might find it very hard to dislodge him. 

With friends like these...

In 1969, Canadian Prime Minister Pierre Trudeau told the Washington Press Club that "Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt." Five decades on, those words still ring very true.

Joe Biden's very first act on assuming the presidency back in January was to cancel the Keystone pipeline project, which would have boosted exports of Canadian crude oil from Alberta to Gulf coast refineries.  Money that had been spent on construction of the pipeline went up in smoke, along with thousands of jobs. Nine months later, this egregious act of virtue signalling contrasts sharply with Biden's pleas for OPEC to boost oil production, as global crude prices head for $100/bbl. Canada is by far the largest supplier of US oil imports, but the lack of pipeline capacity makes it hard to boost those shipments when they're most needed. 

The centrepiece of Biden's domestic agenda is his so-called infrastructure spending plan -- "so-called" because the definition of infrastructure seems infinitely elastic. The size of the package is still in dispute -- $1.5 billion? $ 3.5 billion? Who knows?  But what is clear is a strong "buy American" theme running through the entire deal.  No surprise there -- protectionism runs deep in the US, particularly in the Democratic Party. This poses a particular threat to Canada, most notably the auto sector, as this article explains. It seems likely that many of these provisions will turn out to be in breach of the revised North American trade deal, but there's plenty of scope for damage to be done before that gets proved in court.

Then there's the border. The US and Canada closed "the longest undefended frontier in the world" to all but essential traffic back in March 2020, and that closure has been extended on a month-by-month basis ever since. (Travel by air has never been closed off). Canada reopened its border to fully vaccinated US travellers this summer, but the US kept Canadians (and Mexicans) out, even though Canada has done a much better job than the US in controlling the COVID pandemic. The land border will finally reopen for Canadian travellers on November 8, but the extended closure on the US side looks like a gratuitous slap in the face.

We started with virtue signalling and pipelines, so let's end there. The Line 5 pipeline carries Canadian oil and gas across Wisconsin and Michigan to supply Ontario and Quebec, as well as parts of Michigan, Pennsylvania and Ohio. It has been in operation since 1953 and has a good safety record. The pipeline crosses beneath the Mackinac Straits in northern Michigan. That state's Democratic governor, Gretchen Whitmer, has declared that portion of the pipeline is "a ticking timebomb" and wants it closed. 

This would cause serious harm not only to the two Canadian provinces, but also three US states, including Whitmer's own. The pipeline operator, Enbridge,  is resisting Whitmer's demand, backed by the Government of Canada and, it should be noted, by business interests and unions in the three affected states. The Biden administration has not responded to Canada's pleas for Federal intervention in the matter. It all seems set to wind up in court. In the meantime Enbridge's plan to build a tunnel to carry the pipeline safely under the lakebed is being reviewed, bizarrely as it seems, by the US Army Corps of Engineers. 

It's hard not to notice that Governor Whitmer's supposed concern for the purity of the waters of the Straits of Mackinac stands in sharp contrast with her state's failure to ensure safe drinking water for its citizens: just ask the people of Flint.  Really, with friends like these, Canada surely has no need of enemies. 

Sound and fury, signifying nothing

Those words from Macbeth seem like the perfect way to sum up Canada's Federal election, which took place on Monday. After a clamorous 35-day campaign, the outcome is a House of Commons eerily similar in composition to the one it replaces. The Liberals were about a dozen seats short of a majority before the vote; subject to any last minute corrections, they will be about a dozen seats short of a majority in the new Parliament. The Conservatives, despite again winning more votes than the Liberals, will again be about forty seats behind them. The NDP and Bloc Quebecois, both with around thirty seats previously, will again each have about thirty seats.

Evidently $ 600 million, which is what this election is estimated to have cost, doesn't get you what it used to.  It's hard to pick out any winners here, unless you count the manufacturer of the millions of stubby pencils handed out to voters at polling stations as a COVID precaution. Plenty of losers, though. Let's look down the list, starting with....

Erin O'Toole, the Conservative leader, had little public profile ahead of the election campaign. He seems likeable enough, unlike some of his caucus, but he failed to capitalize on a variety of issues that could have been used to bring down the Liberals -- the sheer pointlessness of the election, Justin Trudeau's perceived lack of gravitas, the mounting cost of COVID benefit schemes that may no longer be needed. Unlike his feckless predecessor, Andrew Scheer, he is unlikely to be ditched as a punishment for failure, but his party will not be merciful in a year or two if he is unable to make an impact in  Parliament.  

Jagmeet Singh, leader of the ever-so-slightly leftist NDP, is widely admired for his intelligence, even by  those who would never vote for him. The NDP is often described as "Liberals in a hurry"; in the last Parliament they regularly propped up Trudeau's government in the House of Commons, getting precious little in return and, as the vote count suggests, doing nothing to build on their support base. Singh's smart nice guy act may start to pall if the party continues to keep Trudeau afloat in the new Parliament.

Canada -- yes, the whole country -- is a clear loser here, and not just because of that wasted 600 mil'.  There's some small consolation to be had in the fact that the perfectly odious People's Party of Canada (populist, nativist) failed to elect anyone to Parliament. But this election served yet again to underline the deep divisions within the country.  The Liberals were elected by the country's poorest region (the Atlantic Provinces) and its three most cosmopolitan cities, Montreal, Toronto and Vancouver. The prairie provinces and most of Ontario were solidly Tory, while the Bloc Quebecois continues its hold on most of Quebec.  In their six years in office, the Trudeau Liberals have done nothing to bring the country together.

And lastly, we come to Justin Trudeau himself, probably the biggest loser of all. The election was his gamble and it failed to net him a majority government. His flimsy rationale for having an election at all centered on the fact that the House of Commons was hard to manage -- evidently he has not spent much time studying how things go in the US Congress or the UK House of Commons, let alone the Israeli Knesset.  Ottawa is a bastion of politeness and tranquility by comparison. He is unlikely to find things any easier now.

Many years ago Trudeau's father, Pierre, famously took a walk in an Ottawa snowstorm and decided to resign the Prime Ministership. Justin may soon start hearing subtle hints that it's time for him to strap on his snowshoes and take a walk of his own. His Deputy (and Finance Minister) Chrystia Freeland has been doing most of the top job for the past couple of years anyway, and is almost embarrassingly keen to take over. If that happens, it won't be long before she sees the need to obtain a personal mandate from the people, in the form of yet another election. Better put another $ 600 million aside -- we may be needing it soon.  

Just what I wanted!

To the surprise of absolutely nobody, Prime Minister Justin Trudeau has called a Federal election, to be held on September 20.  So much for the concept of fixed election dates, passed into law by PM Stephen Harper more than a decade ago but largely ignored by everyone (including Harper) ever since. An election is not actually due until October 2023, but Trudeau thinks he spies an opportunity to win back the majority that he lost in the 2019 election. 

Trudeau's suggestion that Canadians "deserve a say" is in effect his first untruth of the election campaign. Opinion polls suggest Canadians don't want an election right now, with a fourth wave of the COVID pandemic starting to spread across the country. The main national opposition parties -- the Conservatives and the left-leaning New Democrats (NDP), both running behind Trudeau's Liberals in the opinion polls -- don't want an election either, which is precisely why Trudeau is so keen to have one as soon as possible. 

The parties' full platforms for the election are not available yet, but many of the key elements for the three main parties can already be discerned.

The Liberals will largely run on their record, especially in regard to COVID. After what was perceived as a slow start, Canada's vaccination program has been one of the most effective in the world. Although the first wave of COVID back in 2020 took a severe toll on the economy, Canada is much closer to regaining its pre-pandemic GDP than the US is; Trudeau will claim that this is thanks to the myriad support schemes his Government introduced and will assure Canadians that the fiscal cost of these schemes can be afforded as the economy returns to normal growth.

If the Liberals have a weakness, it may be on foreign policy,  not normally much of an issue in Canadian politics.  Relations with China are positively frosty, thanks to Canada's failure to duck a US request to detain a Huawei executive, Meng Wangzhou, as she passed through Vancouver airport two years ago. Extradition proceedings are still underway, on charges that are frankly a textbook example of US legal over-reach. In retaliation, China has held two Canadian citizens on dubious spying charges and has sentenced a third to death on drug smuggling charges.  Trudeau has been unable to break this logjam, and appeals for help from Washington have gone unheeded, just one example of Canada's lack of influence there, even with President Biden in the Oval Office. 

The Conservatives' opening pitch will be that they are not Justin Trudeau, which will be sufficient to win them plenty of seats in some parts of the country, particularly Western Canada. Party leader Erin O'Toole's platform will focus heavily on the need to return to balanced budgets as soon as possible. His finance expert (and presumptive Finance Minister, if the Tories win the election), Pierre Poilievre, is borderline rabid on fiscal matters, an approach that may not play well in the heat of a seven-week election campaign.

The Conservatives' main weakness may turn out to be their lack of cohesion as a party. Non-Canadians might be surprised to learn how much US-style religious fundamentalism and pro-gun sentiment there is in Canada, especially in the West.  Those folks lean heavily Tory. There is also an evident east-west divide on energy policy, with the producing Provinces in the west (Alberta, Saskatchewan) keen to maximize revenues from their fossil fuel resource, while the rest of the country is turning ever so gradually greener.  It will be tough for O'Toole to thread this needle.

The NDP has been whining that an election is not needed because it has been supporting Trudeau in making the minority government work, which is a peculiar way to launch an election fight, to say the least. The only substantive pledge the party has made so far has been the introduction of a national pharmacare plan. This would be a good thing, but will lay the party open to accusations of spendthriftery from both of the other parties.  NDP leader Jagmeet Singh seems like a nice guy -- and his wife has just revealed an amazingly opportune pregnancy -- but the NDP has never formed a government at the national level and is highly unlikely to get close this time. 

It's possible that Trudeau will pay a price for inflicting an election on Canadians in the final weeks of summer, and in this year of all years, but for now this looks like the Liberals' election to lose. As for me, well, as I was doing a few errands this morning a catchy little reggae number came on the radio:  Conscious Party, by Ziggy Marley. Wonder if they'll be running a candidate in Niagara? 

Biden's time

Canadians watched the Trump era with a mixture of horror, apprehension and amusement, perhaps not all that different from the reaction of the millions of Americans who are not part of Trump's "base". The Trudeau government often seemed to be walking on eggshells in its dealings with Washington, but the Trump period was not without its achievements for the bilateral relationship, most notably the successful negotiation of a new trade agreement to replace the NAFTA treaty. 

Most Canadians, including the Trudeau government, breathed a quiet sigh of relief when Joe Biden won last November's election, and looked forward to calmer times to come. But if we were expecting the Biden era to mark a huge sea-change from Trumpism, we have by and large been disappointed. Oh, sure, the tone in Washington is a bit more civil, but just consider this little list, not all of which is specific to Canada.

• Literally on his first day in office, President Biden moved to cancel the Keystone XL pipeline project, which would have carried Canadian tar sands crude to refineries on the Gulf Coast. And yet, after this blatant piece of virtue signalling, the Biden administration has quietly given the go-ahead for a number of other fossil fuel projects. 
• This very week, as the IPCC releases its doom-and-gloom report on global warming,  we find Biden reacting to rising US gasoline prices by demanding that oil producing countries ramp up their output.  Going all the way back to the 1970s and 1980s, Presidents have regularly hectored OPEC about production levels whenever gas prices have spiked. For a government keen to portray itself as "green", it's not a good look. 
• In time-honoured Democrat fashion, Biden has tightened up "Buy America" provisions for public sector procurement. It will be enlightening to see how much of the business generated by the sprawling "infrastructure" package will be open for bidding by non-US companies, including Canadians..
• Biden has done nothing to smooth down the more abrasive edges of Trump's foreign policies. There is no sign of any return to the slightly less aggressive policy towards Cuba that the Obama administration briefly initiated: Cuba's very survival after six decades of US intransigence is almost miraculous. Policy towards China, at least measured by the tone of the rhetoric from Washington, has become even more confrontational, with experts now openly worried about a spiral towards armed conflict.

In the end, the rest of the world just has to remember that for every US President, regardless of their party label, America always comes first. President Biden may be a whole lot more subtle about it than his predecessor was, but in practical terms, the rest of us still have to be ready to stand up for our own interests.