15 Oct 08: Challenges for the Next Canadian Government

[Edward Campbell]

Yet more, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s National Post, on why, despite the political imperatives the stimulus package likely to be unveiled in Canada – to pacify the Liberals and their entrenched special interest groups – is going to be a waste of your money, and mine:
------------------
http://network.nationalpost.com/np/blogs/fpcomment/archive/2008/12/15/terence-corcoran-here-comes-statist-claus.aspx

Terence Corcoran:
Here comes Statist Claus!

Posted: December 15, 2008, 9:34 PM


Stimulus Week: It’s global, it’s big and it’s taking the world 
economy back decades

By Terence Corcoran

T’is the week before Christmas, soon to be known across Canada and around the world as Stimulus Week. Here comes Statist Claus, here comes Statist Claus. It’s the return of big fat rolly polly government, rising deficits and taxpayer money flowing out in all directions. Ho. Ho. Ho.

In Germany, Chancellor Angela Merkel staged a weekend summit of labour, business and economic figures to work out a new stimulus package to add to an earlier plan announced in November. Ireland and Portugal are cranking out fresh spending extravaganzas. The EU outlined a $3-billion stimulus initiative on Saturday.

But Germany took no new action over the weekend. The Wall Street Journal quotes a German official who said Germany would wait for Barack Obama to take office in Washington and announce his stimulus plans for the United States. Then Germany would announce its own plan as part of a co-ordinated global effort. Japan, meanwhile, outlined a $250-billion spending binge.

What will Mr. Obama deliver? Everybody is talking about the big number: $1-trillion. Whether that’s new money or old, over one year or two or more, nobody knows. That’s not the point. The objective appears to be to make the number hit $1-trillion, regardless of where it comes from or when it’s spent. At that level, giving the auto sector $20- or $30-billion will seem so unimportant, so natural and necessary, a small piece of a giant initiative.

In Canada, big increases in government spending and deficit financing have rolled to the top of the policy agenda. The deficit taboo of a couple of years ago, rhetorically enforced by Liberals and Conservatives, columnists and economists, has disappeared. Now, deficit spending is said to be essential, crucial to the emergence of Canada from recession. Only governments can get us out of this economic mess.

Through this week, Finance Minister Jim Flaherty is on a cross-country stimulus tour, scouring the the land for spending strategies and initiatives. Industry Minister Tony Clement has already dug up some corporations in need of taxpayer-to-mouth resusitation. The auto sector will get a few billion, with forestry, mining and other “extraction sectors” due to receive fiscal aid in the next budget.

Stimulus Week: It’s global, it’s big and it’s taking the world economy back decades. To recognize Stimulus Week, FP Comment will dedicate its pages to commentaries related to stimulus policy, including auto and other bailouts. Today, National Post auto columnist David Booth hones in on the North American auto bailout (hailed as part of government stimulus measures) and argues that what Detroit needs is weeding, not watering. The best option would be to put Chrysler through reorganization. It’s already all but dead, he says, and rationalizing its products might even help save General Motors.

On the economic front, Dale Orr, of IHS Global Insight, notes that most of what Canadian governments might do to stimulate the economy would be a waste, and the one thing they likely will not do on any grand scale -- cut taxes -- is the one thing that could do most to help the economy.

The main point is that major bursts of government intervention and spending cannot do anything to turn the economy of any country around. For a video treatment of stimulus theory, the best yet was posted Monday by Dan Mitchell, senior fellow at the Cato Institute in Washington. In less than eight minutes, Mr. Mitchell traces the origins of stimulus ideology from its founder, British economist John Maynard Keynes, through to its disastrous application by U.S. presidents Herbert Hoover and Franklin D. Roosevelt in the early 20th century, and to its later failures -- as neo-Keynesianism -- during the 1970s and 1980s.

More recently, massive U.S. government spending and deficits under George W. Bush have also done little to stave off the current recession. Indeed, many economists have been accusing the Bush administration of reckless fiscal policies and of risking the U.S. economy with massive deficit spending! Why should more of the same policy help the U.S., or Canada or any other country, this time?

In the days ahead on these pages, we’ll explore the ideas behind stimulus theory, from Keynes to Krugman. What can governments do, via fiscal policy, to help produce growth -- besides nothing?

The revival of Keynesian economics, from near death just a few years ago to front-line economic policy today, is a function of the always present belief in the need for governments to manage economic activity and control markets. As Peter Foster wrote on this page last Saturday, commenting on the Keynesianist revival promoted by died-in-the-wool interventionist Joseph Stiglitz, “soaking the rich and letting public spending rip had a terrible record both in the 1930s and the 1970s, and will always have such a record.” The inevitable result is stagflation and deficits.

We’ll have another look at Keynesianism tomorrow from Mr. Foster. But Lord Keynes rarely disguised his focus on the need for massive redistribution of wealth and government manipulation of investment and consumption to raise growth. In his most famous work, he wrote: “The chronic tendency of contemporary societies to under-employment is to be traced to under-consumption -- that is to say, to social practices and to a distribution of wealth which result in a propensity to consume which is unduly low.”

Damn those rich people: They only invest and don’t consume enough. With those words, Keynes opened the door for the worst economic system outside of communism and fascism.

Financial Post
--------------------


Keynesian economics is debatable, Keynes wasn’t wrong just because I’m not a true believer. But intervention isn’t always the answer and it is never the only answer.

From a distinctly Canadian perspective:

1. Washington/Obama matters more to us than does Ottawa/Harper. The US stimulus, which may be harmful to the US in the medium and longer term, will help us, in the near term, by stimulating demand for resources, goods and services.

2. We can, economically, afford to coast along and wait for the markets to do their work – aided or hindered as they may be by the Keynesians – stimulating next to nothing at all, although some hefty infrastructure spending would be a good idea. That would be the fiscally prudent course.

3. We will stimulate because it is a political imperative.

 

[Edward Campbell]

And even more, on the same topic, this time from Keynesian Jeffrey Simpson, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail:
--------------------
http://www.theglobeandmail.com/servlet/story/RTGAM.20081215.wcosimp16/BNStory/politics/home

If you want stimulus, watch out for the traps

JEFFREY SIMPSON

From Tuesday's Globe and Mail
December 16, 2008 at 12:00 AM EST

We are all Keynesians now. But for how long?

Canadians were half-Keynesians in the nightmare years of deficits and growing national indebtedness that stretched from the mid-1970s to the mid-1990s. Their governments spent more than they raised in taxes when times were bad, just as John Maynard Keynes recommended. But governments did the same thing when times were good, which was not what the great man recommended.

Once hooked on deficits, Canadians couldn't shake the addiction. Too many interest groups got plugged into patterns of spending and specific programs (or tax incentives) that benefited them. Policies designed to be “temporary” became permanent. Ferocious opposition confronted attempts to curb spending, so that even a government such as Brian Mulroney's, with its huge parliamentary majority in 1984, trembled.

Canadians became inoculated against deficits by the late 1990s, after the Chrétien-Martin Liberals showed that balancing the books benefited, rather than hurt, the country in normal economic times.

While Europe and Japan kept running deficits, and George W. Bush plunged the United States back into the deficit spiral that emerged under his father and Ronald Reagan, Canada stood out among Western countries for its steely resolve not to run deficits.

The resolve paid dividends in lower absolute debt, sharply lower debt-to-GDP ratios, and smaller annual interest payments on the debt. The country hit the sweet spot of smaller interest payments, lower debt, lower taxes and more money for such programs as health care and defence.

Canada did during its inoculation period exactly what Keynes had recommended. It reduced future obligations in good economic times. The pity was that this critical half of Keynes's dictum had been forgotten for too long.

Now, just as sharply as Canadians inoculated themselves against deficits, everyone is crying for them. The plutocrats in the business community want deficits, and the Harper government has grudgingly conceded deficits lie ahead.

Canadians appear realistic. They know that the economic downdraft of weak credit, consumer reticence, low commodity prices and rising unemployment requires a stimulation of demand by government. But they also seem properly leery about open-ended commitments. They want deficits that are targeted and short term. They are, in other words, wise.

The tricky part is how to stimulate fast.

A lot of ideas for stimulus get the timing wrong. Infrastructure projects, for example, take a while to prepare. Plans must be made, materials bought, tenders given and labour found, to say nothing of environmental and regulatory hurdles. Rush any of these, and say hello to potential cost overruns and poor design.

So just when the economy has recovered, say in 2010-2011, the infrastructure projects are coursing money into the economy – at the very moment when it's not needed. Unless, of course, you want to return to deficit financing for a long time – in which case, cycles don't count for much.

These cycles were always among the banes of Keynesian economics. Matching stimulus to downturns, and restraint to boom times, proved next to impossible. So did scaling back stimulus, with the results of chronic deficits and inflation.

Today, the cries are up to help the auto industry. But those cries predictably produced pleas from the forestry sector. And then the mining sector. What's next?

It's telling that these manufacturing/resource industries get so much attention, but who's talking about helping high-tech companies such as Nortel that still do a lot of research and development in Canada, a country that desperately needs more R&D.

Once governments start picking sectors in the name of short-term stimulus, they don't always pick the right ones with the right tools, and they neglect sectors that don't squawk as much but are arguably more important for the economy.

There are, in other words, a whole series of traps lying in wait for those who cry for economic stimulus.

The 1970s offer instruction on the tax side. Eager, even desperate, to boost growth in an era of stagflation, the Trudeau government pockmarked the tax code with dozens of incentives for industries. The result eroded the tax base. Spending kept growing, but the revenue holes (or “tax expenditures”) widened the gap each year between spending and revenue, and contributed to the long-term deficits.
-------------------

The key bit here is that when ”governments start picking sectors in the name of short-term stimulus, they don't always pick the right ones with the right tools, and they neglect sectors that don't squawk as much but are arguably more important for the economy.” That’s what Stephen Harper, driven by a need to pacify Iggy’s Liberals, is about to do: he will pour money into dying sectors, in a vain attempt to delay the inevitable, and he will, likely, ignore stimulus spending that might be productive.

 

[Kirkhill]

I noted earlier the need for theatrics - to convince people who wonder "What must be done?" that something is being done - and that the biggest concern in my mind was the inflationary effect of politicians throwing around trillions of dollars.  Not because of the number itself but just because of this from Corcoran:

The objective appears to be to make the number hit $1-trillion, regardless of where it comes from or when it’s spent. At that level, giving the auto sector $20- or $30-billion will seem so unimportant, so natural and necessary, a small piece of a giant initiative.

At this point in the game I can only hope that Harper can get away with a single digit or low double digit (billion) deficit for about 18 months to 2 years - just to show that he is "doing something".

 

[Rifleman62]

I can hear it now, the LPC will bill the CPC as the government who brought the deficit back to Canada after the LPC had slayed the deficit and in consequence saved Canada.They will even have the gall to say this in March 2009 or earlier. And do you know what, this message will be repeated, and repeated by the likes of CTV, G & M, and of course the CBC. And Canadians will believe it. The black beast indeed.

 

[Kirkhill]

Just hearing "on CTV" that the Ontario government has released a study saying that the loss of the Big 3 would result in 500,000 lost jobs.

Does that make Ontario, or at least SW Ontario Canada's biggest company town?  Just like all those lumber camps, mining towns and outports that have died across Canada over the last few decades?

I note that Canada is supplying 20% matching financing because we apparently supply 20% of the North American market.  I wonder how we manage to defend that politically when we are only 10% of the population.

It is arguable that there would be no auto-industry in Ontario if it weren't for the statist Autopact.  A giant make work project if you will.  Although it is now dead and buried a low dollar and NAFTA kept the established industry alive but did nothing to promote innovation.

 

[Edward Campbell]

And here it is.

There is another side to every story and here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the CBC News web site, is a report on a report prepared for the Ontario Manufacturing Council, ”an advisory panel of industry and labour representatives:”
--------------------
http://www.cbc.ca/canada/story/2008/12/16/jobs-auto.html

582,000 Canadian jobs would be lost with collapse of Big Three: report

Last Updated: Tuesday, December 16, 2008 | 7:45 AM ET
CBC News

Canada would lose 582,000 jobs within five years if the Big Three automakers completely shut down, according to a report prepared for the Ontario Manufacturing Council, an advisory panel of industry and labour representatives.

The report, which was prepared by the Centre for Spatial Economics, projects a bleak economic picture for the province and the rest of the country if the automakers were to go out of business.

Effects on employment would be felt right away, the report states, with Canada losing 323,000 jobs if production ceased immediately, and 281,800 in Ontario alone, the report forecasts. Those figures would climb in five years to 582,000 jobs nationally in 2014, 517,000 of those in Ontario.

A cut in production by 50 per cent would eliminate 157,400 jobs nationally immediately, 141,000 in Ontario. By 2014, 296,000 jobs would be lost, 269,000 in Ontario.

"The fact is that if this industry goes, it is going to involve a lot of people," said Rob Wildeboer, a council member and the executive chairman of Martinrea International Inc. "A lot of people that are going to be your neighbours, they're going to be friends, probably family members."

The depreciation of the Canadian dollar, lower interest rates and lower production costs would eventually help the economy to partially recover, but the loss of the Detroit Three would leave a permanent dent in Canada's economy in terms of jobs and output, the document says.

The collapse of the Big Three would have far-reaching effects, including a reduction in production by the Canadian automotive parts industry of 80 per cent, the report predicts.

The Canadian subsidiaries of the Detroit Big Three automakers had asked Ottawa and Ontario for financial aid that could total as much as $6 billion.

Last Friday, the federal government and Ontario reached a deal to offer $3.3 billion to Canada's auto industry, contingent on the approval of a proposed $14-billion US aid package in Washington.

"This report says that Canada is better off providing life-support to GM and Chrysler, because the demise of auto in Canada is the economic equivalent of a nuclear freeze, with catastrophic effects that would knock us into a deep recession," said Ontario Economic Development Minister Michael Bryant.

The U.S. bailout package collapsed in the Senate. But the White House has said it is considering using money from the $700-billion US Wall Street rescue fund to support the domestic automakers.
--------------------

Here is more about the Centre for Spatial Economics.

You can expect anti-bailout people, like me, to be beaten about the head and ears with this report for days and weeks to come.

But it is important to remember that real working people, lots of them, and their families are going to be hurt by this long, deep recession and the consequential restructuring.

 

[Brad Sallows]

>Canada would lose 582,000 jobs within five years if the Big Three automakers completely shut down,

But the Big Three automakers are not going to completely shut down, even if they receive not a dime.  They are going to go into bankruptcy and work the problem.

If the Big Intellects behind this report and its public spin are bright enough to do a meaningful impact analysis and to communicate that in terms most people will be able to understand, they should get on with it.  If all they can do is fearmonger, I invite them to shut their overpaid mouths.

 

[Brad Sallows]

A .pdf of the report is at http://www.cbc.ca/news/pdf/omc-autoimpact-b.pdf.

Here is what the report's authors have to say about their scenarios (100% and 50% production drop):

"These scenarios, while extreme, are clearly possible and their ramifications need to be understood."

While we can all discuss "extreme" scenarios, it would be more useful to discuss "likely" scenarios.

Among their assumptions:
- the 100% or 50% drop in Big 3 production
- no change in foreign manufacturers' production in Canada (unlikely if not already invalidated by events at foreign auto plants in Canada)
- net change of less that -100% in Big 3 dealership employment in the 100% production loss scenario - if the Big 3 cease production, their dealerships will cease to exist long before all existing inventory has cleared; what the report describes as employment transferred to foreign auto dealerships are by definition not "Big 3" and assume that the foreign auto dealer network will need those salesmen.  But that depends on what sort of change in consumer demand is necessary to trigger a full shutdown.

GIGO.

 

[George Wallace]

>Canada would lose 582,000 jobs within five years if the Big Three automakers completely shut down,

But the Big Three automakers are not going to completely shut down, even if they receive not a dime.  They are going to go into bankruptcy and work the problem.

If the Big Intellects behind this report and its public spin are bright enough to do a meaningful impact analysis and to communicate that in terms most people will be able to understand, they should get on with it.  If all they can do is fearmonger, I invite them to shut their overpaid mouths.

Imagine if the Big Three did shut down.  We would all have to become equestrians. 

 

[Kirkhill]

I'm still trying to figure out if Ford really is at risk.  They seem to be playing this game differently than the other two.  Its almost as if they are in a position to ride out this storm but are just seeking to buttress themselves from being put at a competitive disadvantage if the other guys get free money.

They are asking for a line of credit "if necessary".  They seem to be more free with the information that they are filing in these cases while GM and Chrysler are holding back (at least that is the take that I get from this morning's press conference).

Also, the Auto Parts Manufacturer's rep seemed to suggest that their biggest problem would be if GM went down and left them holding the bag on unsold parts.  That would render the businesses unprofitable and force them into bankruptcy. 

The problem is not necessarily the loss of trade, other car makers will eventually take up the slack.  It seems to be strictly about covering GM's debt if it fails.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s National Post is a useful, pretty basic critique of the Keynesian theory/method:
--------------------
http://network.nationalpost.com/np/blogs/fullcomment/archive/2008/12/16/peter-foster-the-ugly-spectre-of-new-keynesianism.aspx

Peter Foster:
The ugly spectre of ‘new Keynesianism’

Posted: December 16, 2008, 7:39 PM

Keynesianism has been found fatally wanting in both theory and practice, so why is it back?

By Peter Foster

Zombie Keynesianism, with its promise of 10,000-volt stimulus, continues to lurch around the political scene, while John Maynard Keynes’ acolytes struggle to gussy up his policy Frankenstein for another prime time appearance.


Chief among Lord Keynes’ public proponents are economist Joseph Stiglitz and his biographer, Robert (Lord) Skidelsky.


Prof. Stiglitz recently wrote in Vanity Fair of the importance of understanding the roots of the present crisis. “The battle for the past will determine the battle for the present,” he wrote, reflecting communications strategy from Nineteen Eighty-Four. “So it’s crucial to get the history straight.”


It is indeed crucial to understand the past, but rather than clarifying Keynesian history, both Messrs. Skidelsky and Stiglitz seem intent on shoving inconvenient truths down the memory hole, and engaging in rhetoric rather than objective analysis. There is an old economic joke: “Sure, it fails in practice but does it work in theory?” The approach of Messrs. Stiglitz and Skidelsky is to bury the evidence of practice, demonize straw-man opposition and not so much establish the theory as simply assert its moral credentials.


No comment has been more eagerly leapt upon by interventionists than Alan Greenspan’s mea culpa about his misplaced faith in markets. In a piece in last Sunday’s New York Times, Lord Skidelsky suggested that since the case for light regulation lies in the market “efficiency” that Mr. Greenspan found wanting, then the free-market capitalism jig is up.


In fact, the case for free markets since Adam Smith has not been that they are perfect, but that they represent an astonishing co-ordinating mechanism that government attempts to improve — beyond the protection of property, and the enforcement of contracts — at everybody’s peril.


If Mr. Skidelsky is interested in mea culpas, meanwhile, a more relevant one is that of  former British prime minister James Callaghan, who said, in 1976, “We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candour, that that option no longer exists; and that insofar as it ever did exist, it only worked by injecting bigger doses of inflation into the economy followed by higher levels of unemployment as the next step. That is the history of the past 20 years.”


Lord Keynes was concerned about a very real problem in the 1930s: that economies might be “stuck” at a low level of output and a high level of unemployment, which he saw as a failure of classical economic theory. His analysis was contained in his book, The General Theory of Employment, Interest and Money, which was published in 1936. Keynes claimed that such a phenomenon — when individuals were, in their irrational fear, allegedly socking away cash in their mattresses — required government expenditure to keep up “aggregate demand.” It didn’t matter where the government spent — be it roads, pyramids or even wars — such expenditure was needed to jolt the economy back to full employment.


Adam Smith had observed that “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” Keynes’ version, as economist James Buchanan pointed out, turned this wisdom on its head: “What is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation.”


Spend yourself rich!


But how could government inject anything into an economy that it did not take out, either currently via taxes, or by taking on the burden of debt? In fact Keynes said that government deficits should be matched by corresponding surpluses in good times, but Keynesianism inevitably proved a one-way pendulum, as Prof. Buchanan had warned. Meanwhile Friedrich Hayek, who was both Keynes’ friend and rival, had pointed out that there was an even greater danger in any policy system that implied that governments knew best; it was called The Road to Serfdom.


Significantly, both Hayek and Buchanan were stigmatized for their apostasy, not least because Keynesianism — with its stratospheric worldview and its promotion of “macroeconomics” — proved wildly popular with both politicians and policy wonks.


As Milton Friedman, wrote: “Here was one of the most famous and respected economists in the world informing governments that the way to full employment was paved with higher spending and lower taxes. What more attractive advice could politicians wish for?”


Keynes was at least vaguely aware of the potential dangers of his policies, but chose to believe that the politicians to whom he gave advice shared his own sense of noblesse oblige.


In a famous letter congratulating him upon the publication of The Road to Serfdom, Keynes wrote to Hayek: “Dangerous acts can be done safely in a community which thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly.”


As Prof. Friedman mischievously pointed out, Keynes’ agreement with “virtually the whole” of [i\The Road to Serfdom[/i] obviously did not extend to the chapter titled “Why the Worst Get on Top”!


Meanwhile Keynes’ theories had other purely economic flaws, a major one of which was pointed out by Robert Lucas. Prof. Lucas’s theory of “rational expectations” pointed out that the success of Keynesian stimulus depended essentially on fooling all of the people all of the time. In fact, businessmen would tailor their decisions to government policies, thus neutralizing them.


Keynesianism has thus been found fatally wanting in both theory and practice, so why is it back? One reason is sheer political desperation, or as Professor Lucas put it, “I guess everyone is a Keynesian in a foxhole.”


However, the support of Messrs Stiglitz, Skidelsky and other modern liberals, such as Paul Krugman, is also based on a fundamental distaste for free-market capitalism as the rule of greed and materialism (not to mention a system that deprives them of their rightful role as society’s guardians).


Prof. Stiglitz looks at the doughnut and sees only a hole: the economy in his eyes is everywhere plagued by “market failure.” Lord Skidelsky’s moralistic approach is on flagrant display in an article in the current Prospect magazine. He fulminates against materialism and “the corruption of money.” He denigrates “off-shoring.” He bemoans globalization and the “rape of nature.” Above all, he projects a world in which a race of omniscient Keynesian geniuses make markets “well-behaved” and render globalization “efficient and acceptable.”


Lord Skidelsky stresses with approval that Keynes was “a moralist as well as an economist. He believed that material wellbeing is a necessary condition of the good life, but that beyond a certain standard of comfort, its pursuit can produce corruption, both for the individual and for society.”


So a guardian class must decide, presumably, what an acceptable dividing line between “comfort” and “corruption” will be. Otherwise, as Keynes hysterically suggested, “We are capable of shutting off the sun and the stars because they do not pay a dividend.”


Such is the thinking behind the “new” Keynsianism. High moralism. Desperate politics. Terrible economics.

Financial Post
--------------------

What many Keynsians and most anti-Keynesians forget is that despite the grandiose title (The General Theory …, Keynes was dealing with a highly specific situation – one created, in large measure, by bad policies (see Smoot Hawley etc) – which he proposed to address with some highly specific remedies. Keynes ought not to be blamed because:

• His ‘theory’ worked in that one, specific situation; and

• Most everybody failed to read Chapter 2 with all its warnings and admonitions to save when times are good.

It is not fair to blame Keynes for e.g. Pierre Trudeau; economic idiocy of that magnitude cannot be taught – not even in the old, red pinko London School of Economics of the 1950s.

Spending, even deficit spending does stimulate the economy  and some stimulus can mitigate the effects of recession/depression IF it creates productive jobs – such as those involved in e.g. maintaining/rebuilding crumbling infrastructure. But, and it’s a great Big BUT debts, even debts incurred in a ‘good cause’ must be paid back – the quicker the better. Keynes advised that it is better to have large surpluses (from overtaxing in good times) that can then be spent during hard times – but many would argue against that position.

Smith's “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” is good advice: work hard and work effectively and efficiently; keep your fiscal head above water; save for a rainy day (which, in Canada, may require some creative accounting given our laws and practices about public finance); deficits/debts need not be bad if they are managed well - consider your own mortgage, for example (I hope your mortgage is a good example of fiscal prudence); pay off your debts quickly; and so on. 

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail, is a report on the Tories’ deficit/stimulus promises – those being the new tools for currying electoral favour:
--------------------
http://www.theglobeandmail.com/servlet/story/RTGAM.20081218.wharper19/BNStory/politics/home

Harper eyes stimulus worth $30-billion

STEVEN CHASE

From Friday's Globe and Mail
December 18, 2008 at 10:00 PM EST

OTTAWA — The Harper government will embark on the biggest deficit-spending program in Canadian history to try to jump-start the country's faltering economy – a stimulus package in the 2009 budget worth up to $30-billion.

“Some people are talking in the neighbourhood of a $5- to $10-billion deficit. Our own assessment is frankly that will not be sufficient given the challenges we're facing,” Prime Minister Stephen Harper told CTV News in a year-end interview.

“I think what will be more realistic in terms of the kind of stimulus our economy is going to need is going to be in the $20-billion to $30-billion range.”

But even as he put a price tag on the planned aid, Mr. Harper said he's prepared to go further if necessary. “It will be scalable. We will be able to move it up if we need to move it up,” he said. “We're going to do whatever it takes to get our economy through this recession and on to a long-term recovery.”

Mr. Harper didn't say how big a deficit Ottawa would run, but a stimulus package of the kind he's planning would push the federal government deep into the red next year – likely by more than $30-billion.

On Thursday, Canada's parliamentary budget watchdog, Kevin Page, separately released a memo estimating that a $30-billion stimulus package in 2009-2010 would lead to a deficit that surpassed $34-billion for that year.

The last time Ottawa ran a deficit was 12 years ago, and the last one exceeding $30-billion was 1995-1996, before the former Liberal government balanced the books.

The Prime Minister said the stimulus package in the Jan. 27 budget will include:

* Measures to spur consumer spending, although he declined to say whether this might include a temporary reduction in the goods and services tax – or tax-cut rebate cheques. “It's easy to lower taxes but it's harder to ever raise rates back up again,” Mr. Harper noted.

* Infrastructure spending including an already-announced doubling of infrastructure project funding to $6-billion in 2009.

* Housing funding, measures that sources expect will help aboriginals and low-income Canadians and spur energy-efficient retrofits.

* Significant worker retraining “making sure these people who lose their jobs are getting ready for the next job.”

*Aid for industries such as the auto and forestry sectors, as well as communities.

The Tories are expected to lengthen the period during which employment insurance benefits can be collected – so that workers can be retrained – but Mr. Harper said he doesn't want to make it more lucrative to be unemployed.

He stressed, however, that the package spending will be one-time only, so Ottawa can easily climb back out of the red. “Everything we do will be temporary to avoid a permanent deficit,” he said.

The Prime Minister described Canada's planned auto aid – that so far has been estimated at about $3.4-billion – as a defensive move to avoid the wholesale departure of the Canadian industry.

“We have concluded we either do our share of the restructuring or we will have no share of that industry in Canada. If the United States does all the restructuring themselves, the industry will move to the United States.”

He said he expects that the aid will grant Ottawa some measure of control over how auto makers operate in Canada. “Obviously as public money goes into that, there will be more public say about how that money is used.”

CTV's annual conversation with the Prime Minister will be broadcast on Saturday at 7 p.m. local time.

Separately, Mr. Harper was wholly unapologetic for triggering a political confrontation with his opposition rivals in late November, saying he believes Canadians support his bid to scrap per-vote subsidies for political parties.

“We believe … at a time of economic difficulty, it is not right for political parties to be getting tens of millions of dollars in political subsidies. The Canadian public overwhelmingly supports that position.”

Mr. Harper brushed off suggestions that his attack on the Liberal-NDP coalition for allying with the separatist Bloc Québécois would hurt him in Quebec.

And he said the alliance of parties should be prepared to face another election if they defeat his minority government in early 2009 as they have threatened.

“Canadians certainly did not elect a coalition under which the Bloc Québécois would have a veto to govern the country,” he said.

He said he'd be “delighted” to sit down with Liberal Leader Michael Ignatieff to discuss ideas for the January, 2009, budget at any time.

On U.S. president-elect Barack Obama, Mr. Harper called the Democrat a “thoughtful, articulate guy. He's easy to talk to and a very good listener.” He said he thinks the Tories' approach to fighting climate change will jibe with the Obama administration and said he thinks the United States will be able to bounce back from their deep economic woes. “Never underestimate the resilience of the American economy and the American people. The Americans did not get on top of this world for no reason.”

On Afghanistan, Mr. Harper said the deaths of Canadian soldiers in the war against the Taliban is the toughest part of being prime minister.

“I have some big challenges in this job, but nothing is a cloud over my head like the sadness we feel knowing once again there are more of these Canadian families who will not be having loved ones return to them from Afghanistan.”

He declined to say whether he'd reverse course and keep combat troops in Kandahar past 2011 if Mr. Obama asked Canada to stay. “I'm not going to speculate on hypotheticals,” he said.
--------------------

The media and the opposition big spenders – who want to let their friends have “fun” on our (taxpayers’) dime – have sent fiscal prudence to the back of the bus. Canadians are frightened and they believe that, somehow, if government just spends enough of everyone else’s money the cash will, magically, trickle down to them. We Canadians are, finally, Reagan Democrats.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail is an opinion piece by Frank L Graves of Ekos (the polling firm) that dovetails with the opening article in this thread:
--------------------
http://www.theglobeandmail.com/servlet/story/RTGAM.20081217.wPOLgraves1217/BNStory/politics/home

Toward a big North American idea
Now is the time to transcend our narcissism of small difference and engage our American friends, Frank Graves writes

Globe and Mail Update

December 17, 2008 at 11:20 PM EST

Understanding Canadian attitudes to the United States is one of the most complex and misunderstood areas of public opinion research. American attitudes to Canada are, on the other hand, fairly straightforward. Based on low levels of fluency and interest, Americans see us in either positive or benign terms. For many Americans we are seen as mostly like them, an acknowledgement they would consider complimentary. Although this loosely formed sense of sameness is in large measure accurate, many Canadians bridle at the thought of being seen as largely similar to Americans. Herein lays the essence of a national conundrum.

For many years Canadians have defined and prided themselves on their un-Americaness. This may be why Fire and Ice (Adams 2003) has been such a resonant national narrative. The harder evidence suggests this sense of large and growing difference is both untrue and at times unhelpful. Now nowhere are we suggesting that Canada and the United States are homogenous societies. Canadians are more secular, statist, and cosmopolitan than their American cousins and unlike Europe, where national identities have increasingly been eclipsed by local and continental identities since Maastricht, national identities in North America have been strengthening since the FTA and NAFTA agreements. Our research (Graves 2007), however, and the research of other scholars as well (Basáñez, Inglehart, Nevitte 2007) , is increasingly concluding that, far from the thesis of elemental and widening normative differences, our value differences with the United States are modest at best, and the recent historical pattern is to convergence, not divergence.

So why is this observation so difficult for Canadians? And why the tension between what is happening and what we wish to be the case? Further, is this reluctance to acknowledge our similarities hindering or helping our progress as a nation?

Let us begin by considering some public opinion evidence that we recently updated for Carleton University's Canada-US Project. By a wide margin (more than 2:1), Canadians think we are becoming more, rather than less like the United States. This conclusion is consistent with our empirical tests of value changes over the past decade, and largely resonant with the "post-materialist" models which see value convergence occurring in most of the advanced Western world. In fact, one would be hard pressed to find two countries with more similar value systems than Canada and the United States. The second part of the question shows the rub. By an even larger margin (8:1) Canadians say they would like to become less like the United States, rather than more similar. So why does a country which Canadians readily acknowledge to be our best friend and ally (roughly 7 in 10 in agreement) and which displays broad normative resonance, engender such a wilful desire to diverge?

I am not generally fond of psychological explanations for social facts, but Freud spoke of the narcissism of small differences. In this case the insecurities of the smaller and somewhat neglected neighbour stimulate a magnified sense of difference. This irrationality imposes a challenge for Canada's political leaders: they must negotiate a delicate equilibrium of intimacy and difference. Despite the fact that we find Canadians close to unanimous (95 per cent) in their desire to see the federal government strengthen the relationship with the United States to at least some extent (Americans, by the way, feel the same way), heaven forbid if the leader is seen as casting Canada in an obsequious or servile position.

Following September 11th, we were all Americans. But in the aftermath of the exuberant internationalism that produced — in the minds of both Canadians and Americans — an adventurous, but the ultimately wrongheaded foreign policy of President Bush's administration, we saw an erosion of reciprocal outlooks. In many respects, America entered a new period of isolationism tantamount to the period after the Vietnam War ended. Americans once again wanted to pull the drawbridge up and cut off a hostile and unwelcoming world. The new isolationist and protectionist sentiments in the United States were mirrored in a more negative outlook on the United States by Canada (and indeed most of the external world). In this context, we witnessed the border between Canada and the United States "thicken" with the introduction of the Western Hemisphere Travel Initiative and the resulting deleterious impact this had on trade and travel. Likewise, the erstwhile longest undefended border now bristles with guns on both sides.

This brings us to the situation today. The security ethic, which has gripped America since September 11th, is showing some signs of relaxing its hold on the public. On both sides of the border, we have seen a warming trend in our views of each other. With these trajectories already in place, the election of President-elect Obama has signalled the possibility of a leap forward in the relationship. Canadians had overwhelmingly preferred Obama's candidacy and our new research shows that nearly half of the public in Canada (47 percent) feels that the change in the US federal administration is indicative of the arrival of a "fundamentally different" era in the Canada-US relationship (a change that is interpreted as being mostly a "good thing").

So what areas would constitute the preferred focus of the renewed relationship and what should be the tone and style of this renewal? The survey evidence reveals strong public support for pragmatic cooperation across several key areas.

For one, Canadians are prepared to consider merged approaches to regulatory areas like food safety (i.e., there is recognition that Americans are no more interested in consuming tainted foods than Canadians). While it is notable to find that Canadians recognize that our sense of identity and self is not defined by regulatory regimes, we suspect that they would still prefer a partnership approach here, rather than a simple adoption of American rules. There is also a strong desire to see greater cooperation in the crucial areas of borders and trade; particularly as the upper North American economy is sputtering.

The harmonization of other areas, such as immigration, is met with more resistance. Indeed, receptivity to immigration has tracked in sharply difference directions in the two countries since September 11th. It is notable that, despite the broader patterns of value convergence, Canadians are becoming more multicultural and cosmopolitan. In fact, Canada is moving in a different direction on issues of multiculturalism than the US and Europe.

Perhaps the most interesting and important area for greater bilateral cooperation is climate change. There has been an important evolution of public thinking here. Concerns with climate change and the environment have been rising for 20 years and it is no longer simply an issue of social virtue; it now includes crucial security and economic layers. This is particularly timely as we consider wild fluctuations in the price of oil and the imperilled state of the North American automobile and manufacturing sectors. The Canadian public strongly supported the Kyoto accord and understand that air and water do not respect political geography. Yet there is a growing recognition that the entire globe may be too ambitious a net to cast at this stage in history. A continent, particularly North America, is a pretty big place and with only three players, a more practical starting point.

If we factor in energy, environment and border management into the mix, we start to get the broad outlines of an exciting and timely North American project. Continental energy self-sufficiency, more open borders with a shift to focus on perimeter, a blueprint for managing the economic transition to a post-carbon economy, and a clear and ambitious climate change plan with measurable goals would go a long way to relieving some of the deep foreboding that North American citizens feel about the medium and longer term future. Now may be the time to transcend our narcissism of small difference and to engage our American friends in a bold new North American project that speaks to the deepest hopes and fears of its citizenry in this 21st Century.

Special to The Globe and Mail
-------------------

This should set the fervent nationalist cats amongst the level headed canaries.

 

[Infanteer]

This should set the fervent nationalist cats amongst the level headed canaries.

Expect forthcoming books by Mel Hurtig and that other lady....

 

[Kirkhill]

So does this mean, especially given the Globe and Mail source, that the US will get the Fortress North America that eluded George Bush now that it is being sold by Barack Obama?

 

[Edward Campbell]

Further to some of my earlier comments, here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Ottawa Citizen, is an opinion piece by long time Liberal strategist Tom Axworthy (the smart one – younger brother of Pink Lloyd Axworthy – well known as a fount of sensible, practical, progressive ideas):
--------------------
http://www.ottawacitizen.com/opinion/forward+Harper/1097129/story.html

The way forward for Harper

BY THOMAS S. AXWORTHY

DECEMBER 19, 2008


The last time interest rates were this low, John G. Diefenbaker, a Progressive Conservative, was in power. In battling the recession of his time, however, Diefenbaker at least had the stability of a parliamentary majority.

As the recent Parliament Hill drama has proved, Prime Minister Stephen Harper must both respond substantially to the economic storm that is gaining gale force and politically to the parliamentary tempest, which is equally blustery. The January budget must contain a combination of policy and politics that were so sorely lacking in the November economic statement.

By cutting interest rates to a 50-year low, the Bank of Canada has acknowledged that Canada is in recession. Falling commodity prices, a depressed American economy and consumer fears are hammering the economy. In November, 71,000 jobs vanished — the biggest drop since 1982.

The actions taken by the Harper government, to date, are pitiful compared to the dramatic moves of our allies. The Economic Statement on Nov. 27, which actually precipitated the parliamentary crisis, was a stand-pat document that called for a reduction in spending.

In contrast, the conservative administration of George W. Bush has contributed six per cent of GNP to bailing out the financial system, while the Europeans and Chinese have been bolder and gone further.

If the Harper government does not show significantly more imagination in its Jan. 27, 2009 budget, it will be defeated in the House. Full stop. End of story.

Bold trade policies should be one pillar of the forthcoming budget. The creative initiative of a Europe-Canada free-trade agreement is already on the government’s agenda, but has received surprisingly little attention even though it is certainly in keeping with the recent G-20 meeting of world leaders, who lauded liberalization of trade. A full-court press by the Harper government for trade liberalization would be an appropriate response to the recession.

Given that the New Democrats are more anti-free trade than Conservatives and Liberals, this free-trade agreement would have the added political advantage of pulling the Liberals from their putative alliance with the NDP. Roy McLaren, for example, a former Liberal trade minister, is the main proponent of a Canada-Europe free-trade agreement.

The European Commission and Canada’s Department of Foreign Affairs and International Trade demonstrated the value of such a pact in the recently released joint study on the costs and benefits. It concluded that with 700 million wealthy European consumers, the implementation of this pact by 2014 would increase Canadian real income by 0.77 per cent of GNP. Trade would be diversified. Along with NAFTA, a Canada-European free-trade agreement would give us preferred access to the two most developed economies in the world. The Liberal party would have to applaud, leaving the New Democrats to sputter.

Promoting free trade with Europe simply requires more concentration from the harassed Harper government. It does not require the Conservative party to stretch.

My next suggestion does.

Infrastructure is the buzzword of every party’s economic plan. But projects take years to develop. With the recession biting hard today, we need to immediately put money into the hands of low-income Canadians. The place to start is in the restoration of Employment Insurance to its rightful function as protection for Canadians in times of distress, and as a macro-economic stabilizer. Revitalizing Employment Insurance would also have the political benefit of gaining Bloc Québécois support. The Bloc has consistently done Canadians a service in pointing out the inadequacies of our current EI scheme. Making EI reforms the centrepiece of a forthcoming stimulus would stun the coalition.

This idea springs from the excellent work of the House of Commons Standing Committee on Human Resources in its 2005 report, “Restoring Financial Governance and Accessibility in the Employment Insurance Program.” As the report recommends, we need to reform Employment Insurance so that more workers are covered by the plan and livable benefits are paid out longer to unemployed Canadians.

Unemployment Insurance was created in 1940 as an employment stabilizer, but through various cutbacks it is no longer capable of fulfilling this function when we need it most — to spur spending in a recession. Seventy-four per cent of workers were entitled to receive benefits in 1990; by 2004 this number had been reduced to only 36 per cent. Two in three working women who pay into Employment Insurance never receive a penny in benefits, often because they do not accumulate enough working hours to qualify.

The federal government used to contribute directly to EI but now employers and employees are the sole contributors (and the Supreme Court ruled recently that the government has set contribution rates far too high). Every point rise in unemployment leads to an additional $1.5 billion outlay in the fund. Can one think of a greater perversity than taxing jobs during a recession? The government must resume direct contributions to the fund thereby relieving the pressure on employers. The hours necessary to qualify must be reduced so that a majority of Canadian workers will once again be covered, the duration for benefits extended, and training enhanced.

John Diefenbaker struggled with the 1958 recession, but his commitment to working Canadians was never in doubt. As he said in his famous One Canada speech: “I was criticized for being too much concerned with the average Canadian. I can’t help that; I am one of them!”

If Stephen Harper can adopt that particular Progressive Conservative tradition, he might just survive today’s economic onslaught.

Thomas S. Axworthy is chair of the Centre for the Study of Democracy at Queen’s University. He is former principal secretary to prime minister Pierre Trudeau.

© Copyright (c) The Ottawa Citizen
--------------------


My thinking is along these lines: EI should be an insurance programme into which workers, employers and government all pay and from which workers can draw payments based solely on how much they paid in – no distortions for regional economic problems, etc. How much is available, and for how long, should be determined by actuaries based, solely, again, on the ‘health’ of the EI fund.

But Axworthy’s advice to emulate Dief the Chief’s concern for average Canadians is good and Harper ought to follow it.
 

 

[Kirkhill]

My problem with the UI/EI system is the way that it treats seasonal workers vice full-time workers.

I agree that this current, UNPLANNED AND UNPREDICTED, dislocation requires the EI system to function - and the Government should be backing the play with National not Personal dollars (or at least not JUST Personal dollars).

Applying EI to seasonal work is just perverse.  There is nothing unpredictable about seasonal work.  Those workers in it know that it only lasts for a short period of time every year and that it employs a variable number of them for a variable time.  Those that choose to chance their luck in those industries have to understand that if that is their only source of income for the year then they better budget accordingly.  If they need assistance in operating a savings plan to spread that money over the year then perhaps that is a role for government, although there are financial planners aplenty willing to offer the same service.  If they don't earn enough off of one job then find alternate sources of income, or move.

I have had a SIN card for 36 years.  I have paid EI for virtually all of those years, except for the 7 years when I was a consultant (fancy term for unemployed).  In addition to that period there was one shorter period when I could have benefited from UI (at that time).

I have never received a penny of Insurance Money from that fund.  I was declared to have been too well served by my previous salary, or my severance or the money in the bank.  I apparently didn't NEED my money as much as some poor wretch choosing to live off of scenery in the remoteness of Canada.

Meanwhlle I have lived in BC, Alberta, Saskatchewan and Ontario, as well as Indiana.  I have worked in all l0 provinces and more than half of the states.  I have moved my family, whether they wanted to or not, at some personal cost.

All in the name of supplying needs and wants.

I have worked with Phillipinos, Mexicans and Guatemalans who leave their familiies behind to live in barracks in Alaska or crowded apartments in Alberta for 6 months to a year at a time in order to keep their families fed at home and create a better life for their kids.

Take the seasonal work compensation out of the UI plan.  If that is politically inexpedient then create a separate plan for seasonal workers funded from their own income.  There are lots of models to follow including one instituted in Britain by the Labour Government after the war that involved private co-operatives.

I don't even mind if the UI rules that excluded me from compensation are kept in place.  My family, and I, survived and ultimately have prospered.

But  UI, like any other Insurance plan, should be a hedge against the unpredictable future. Not a programme for supporting the unsupportable.

(And as you can tell, here's one where I have difficulty standing back  :-[ )

 

[Brad Sallows]

>Unemployment Insurance was created in 1940 as an employment stabilizer, but through various cutbacks it is no longer capable of fulfilling this function when we need it most — to spur spending in a recession.

After paying rent and utilities and purchasing groceries and basic necessities, how much "spur spending" does a person on a low or fixed income contribute?

For a few weeks now I've been reading claims that pushing more money to people with lower incomes will spark recovery, based on the reasonable assumption they will spend every dime.  Undoubtedly they must, or will.  But can anyone put a number - as in fraction of total economic activity - behind that?

I am skeptical that our current economy, which is based so much on providing unnecessary services to each other and already has a healthy and practically immutable fraction of government spending, will respond to anything less than the routine (pre-"meltdown") spending habits of the middle class majority and the conspicuous consumption of the upper decile of income earners.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail, is more, in the form of an editorial, on EI:
--------------------
http://www.theglobeandmail.com/servlet/story/LAC.20081222.EEI22/TPStory/Opinion/editorials

EMPLOYMENT INSURANCE
A still better stimulus

December 22, 2008

As part of the upcoming fiscal stimulus package, Employment Insurance needs to be reshaped to make it a more effectively counter-cyclical program, smoothing out the ups and downs of the economy.

It is all the more unfortunate that partisan political manoeuvres have led to the prorogation of Parliament, because some of the desirable changes to EI require legislative changes, sooner rather than later.

EI, like social-assistance payments, is called "an automatic stabilizer," because its payments naturally go up when economic activity goes down. It puts money in the pockets of the unemployed, the very people most likely to spend rather than hoard, because they need this money to put food on their tables, clothe themselves and their children, and pay rent.

But it could do much more to help turn the economy around. EI's present arrangements, for both premiums and benefits, are based on an assumption that in 2009 the unemployment rate will be 6.5 per cent. If symptoms persist, layoffs will mean that the rate is significantly higher. The automatic stabilization from EI and welfare, as they now stand, are not such a great comfort, because they have already been taken into account in the economic forecasts on which premiums and benefits are calculated. In other words, we cannot count on the current EI rates to do much to stabilize the economy, to make our outlook more favourable.

Employment Insurance, needless to say, is not like ordinary insurance policies of the kinds that are sold to households and businesses; for one thing, it's not a voluntary contract. More than that, however, it would work best if it were understood as diametrically opposite to normal insurance.

Insurance policies are quite properly designed so that, as the risk rises, so does the premium. But EI is about a "social" risk. As the probability, and indeed the actuality, of unemployment go up, it would aggravate an economic recession if EI premiums are raised. In technical language, that is "pro-cyclical," rather than counter-cyclical.

EI premiums take a bite out of the paycheques of workers; as that mouthful gets larger, it eats into consumer demand and makes a recession worse. Employers pay much of the premium, too, so it is one of the costs of hiring people. Increasing those costs acts as a perverse incentive to lay people off, or not hire them in the first place.

That is why Employment Insurance should be redesigned so that the premiums instead go down, and benefit go up, as the risk of unemployment rises.

As Kenneth McKenzie, head of the department of economics at the University of Calgary, puts it in a recent submission to the Canada West Foundation, included in a report called Taking Action on the Economy: Advice from Western Canada, "reduced EI contributions should be tied to the unemployment rate so that they are unwound as the economy emerges from recession."

Similarly, Professor McKenzie says, higher EI benefits should also be tied to unemployment rates, so that these too are "unwound" as the economy recovers.

Under the current EI program, rates are set so that they stay fairly steady. The present version of the statute has a quite tight mathematical formula for the range within which they can vary. The previous wording called for maintaining "relatively stable levels throughout the business cycle." That suggests an indifference to economic volatility; stability "over the business cycle" might have been better. Neither version provides the flexibility that would allow the federal government to respond either to slumps or to their reverse, to overheating and inflation.

The need for Parliament itself to deal with these matters became very clear in a decision by the Supreme Court of Canada this month. The Confédération des Syndicats Nationaux, a Québécois nationalist labour-union syndicate, had objected to Ottawa's control of training programs under the federal employment-insurance power in the Constitution. Incidentally, the CSN also made a no-taxation-without-representation argument, to weaken the federal government's position, because the Liberal cabinet had three times revised the EI system without amending the statute.

On Dec. 11, the Supreme Court rejected the point that the CSN really cared about, but held that, because EI premiums are a payroll tax, the Liberals had in 2001, 2002 and 2005 violated the Constitution by an act of Parliament that delegated too much to the cabinet, imposing tax without the approval of the House of Commons. Mercifully, the court gave the government some time to figure out how to correct this, rather than force it into some enormous refunds.

There are other ways, too, to deploy EI as a better fiscal stimulus: giving the same treatment to low-unemployment as to high-unemployment regions, expanding eligibility and lengthening the benefit periods.

Employment insurance payments are a singularly rapid way of delivering cash into the hands of people who can then recirculate it, simply by meeting their needs.

There are of course strong ethical grounds for getting money straight to the poor and those at risk of poverty, to those who have lost their jobs, as to those who simply cannot work, not just counter-cyclical reasons. For once, morality and economic expedience coincide.
--------------------

Professor McKenzie is wrong: EI should not be tied to anything except contributions made and employment status. If/when a person is unemployed – through no fault of his own, but not on retirement when a pension is paid – that person should be entitled to payments base solely on how much (s)he contributed.

If, over whatever period of time, you contributed $10,000 (and your employer also contributed was taxed $10,000 and the government added $10,000) then you should be entitled to get, say, $24,000 to be paid out over some defined period of time – say 26 weeks. The other 1/5 of the $30,000 ‘contributed’ in your name is used to stabilize the EI fund and pay operating expenses. Any money you don’t collect should be credited back to you account.

When one retires, on a pension, a person should be given his/her unused contributions (but not the employer’s or government’s ‘shares’ – 75% of the employer’s share should be reimbursed) and should be allowed to roll them directly, tax free, into a RRSP.

 

[Kirkhill]

Insurance policies are quite properly designed so that, as the risk rises, so does the premium. But EI is about a "social" risk. As the probability, and indeed the actuality, of unemployment go up, it would aggravate an economic recession if EI premiums are raised. In technical language, that is "pro-cyclical," rather than counter-cyclical.

EI premiums take a bite out of the paycheques of workers; as that mouthful gets larger, it eats into consumer demand and makes a recession worse. Employers pay much of the premium, too, so it is one of the costs of hiring people. Increasing those costs acts as a perverse incentive to lay people off, or not hire them in the first place.

That is why Employment Insurance should be redesigned so that the premiums instead go down, and benefit go up, as the risk of unemployment rises.

Nonsense, while the risk to the individual rises during a downturn, at the societal level there is no "risk" of unemployment. There is merely the Fact of the Unemployed. 

During this period the Unemployed are collecting the benefits of the insurance that they paid.  The premiums paid to support this insurance policy are not paid concurrently, they should be paid in advance, during good times or, in particularly egregious situations can be paid against future earnings (deficit financing or mortgaging).

Employment Insurance needs to be structured EXACTLY like a conventional insurance plan.  It needs to set money aside in the now for the future.  The fact that it hasn't means that we now need to finance it from the future for the now.

But for Gawd's Sake lets not pretend that seasonal work is in the same category as decadal cycles.