Nov 15, 2014

Dealing with Climate Change and Inequality


Two of the defining problems of our times are wealth inequality (both globally and within the first world) and climate change. With any socioeconomic order - our mixture of capitalism and government being just one - there are going to be consequences both good and bad. There are going to be challenges that the socioeconomic order is particularly good or bad at addressing. The point of this post is to expand on how these two defining problems - global warming and inequality - are products of our particular socioeconomic order, that they are two problems that our system is particularly ill-equipped to deal with.

Government vs Markets:
We have this mixture of systems because markets and governments have different strengths and weaknesses. By using a combination of the two, we are able to try and minimize the weakness of each.

On the market side, a negative externality occurs when the cost of a particular market transaction (going fishing, say) is not directly felt in full by the immediate actors in the transaction, but negatively affects others. For instance, in a fishing habitat, any individual fisherman contributes to a problem of over fishing which lowers the future availability of fish. While in aggregate the externality becomes very negative, the contribution from any individual fisherman is quite small and they would be in their rational best interest to continue fishing since the cost of their overfishing is spread out among so many others. This is the so called tragedy of the commons.

Capitalism as a socioeconomic construct is particularly poor at addressing tragedy of the common problems. Because the system is one where individual and voluntary actions are free to occur, there is no mechanism in capitalism, by definition, to pay the costs of negative externalities. It is perhaps ironic that one of the greatest strengths of capitalism is its ability to finely tune pricing structures to account for the costs that it "sees" with ruthless efficiency, yet one of its greatest weaknesses is the inability to "see" certain types of costs.

In contrast, government is very successful at dealing with these types of problems. By using the fiat power that governments have, they can manage tragedy of the commons situations by, say, putting regulations on fishing in a fish habitat to prevent the negative externality of unsustainable declining fish populations. Indeed, many of these environmental roles like legislating against certain forms of pollution tend to be where the role of government is most complementary to the role of markets and has the strongest cases for government intervention.

Global Warming:
Global warming is the mother of all negative externality problems, where the true costs from our energy consumption paradigm doesn't manifest itself locally, but manifests itself in the "commons" of our global ecosystem. The consequence of climate change is felt widely, but for any individual there is a massive cost with marginal gain for changing their individual actions to help. We all drive to work and heat our homes (in the first world, at least), and each individual contribution to global warming is miniscule. The cost benefit analysis for an individual is clearly to continue. But these effects on aggregate are enormously consequential.

The problem for global warming is that despite it being exactly the type of tragedy of the commons problem that government, not markets, are best suited to address, there simply lacks a sufficiently powerful global governance mechanism to make this happen. It is a global problem, but we don't have a global government to impose regulations by fiat.We have been reduced to try and form some agreement between countries to voluntarily act together.

This has been, for the most part, rather unsuccessful and actually suffers from a tragedy of the commons problem itself, just at a larger jurisdiction. Thinking of countries as individual actors in a larger market, the tragedy of the commons problem returns. Any individual government would be massively advantaged if it didn't have to pay the cost of dealing with climate change while everyone else did the heavy lifting. Somewhat unsurprisingly, no comprehensive agreement has yet been made.

Inequality:
I previously wrote about how the dominant role of government (both descriptively and normatively) is wealth distribution, providing a massive net equalizing force on our world that taxes disproportionately from the wealthy but distributes education and infrastructure and healthcare and so on relatively equally. This underlines just how staggeringly powerful the tendency for capitalism to be unequal really is. The basic dynamic (which can be expanded on at some length) is that the tremendous opportunities that capitalism provides are easiest to take advantage of from those who have resources, which means that the benefits of capitalism disproportionately accrue to those with resources.

Within a country like Canada, inequality is a problem but it is a problem that is mitigated considerably by our redistributive government policies. As a progressive, I believe we should do more, but we are undoubtedly doing a lot already. Between countries, however, inequality falls to the same problem that global warming does, namely a lack of sufficiently powerful governance at the inter-country level. It isn't exactly zero; the UN, the WTO, and the like, curb some of the rough edges. There is a small (relative to GDP) trickle of wealth voluntarily from rich to poor countries. However, these redistributing effects are nothing like what they are within countries, and help explain why there is such staggering differences between the countries, and between whole continents.

Both of these two problems are problems coming from the market side of our socioeconomic system, problems that would normally be left for the government to try and ameliorate but due to their scale are particularly difficult to deal with. This shouldn't be taken as a criticism of capitalism per se. Indeed, we have some pretty striking examples in history of one way things can go horribly bad when the role of government is taken to far. Nonetheless, for our mixture of the two, the two biggest problems of our times are products of market side that the government side is ill equipped to deal with. Indeed, perhaps together they make the case that we should strengthen considerably our inter-country governmental organizations.











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Nov 1, 2014

Income Splitting and Progressive Taxation

The motivation behind the idea of Income Splitting is quite reasonable. Namely, under the current scheme, two families with identical total income can be taxed at substantially different rates, depending on how that income is distributed between both parents. Given the fact that families do very often function as a singular economic unit dividing up total income among the family and not individual income, this makes little sense. 

The problem is that in Harper's attempt to fix this asymmetry - a problem probably worth addressing - further asymmetries were introduced. In particular, the bill is highly regressive. At the bottom it helps single parents not one iota. And it helps low income families whether neither parent makes a higher income not one iota. But it helps families with one high income earner and someone who stays at home to raise the kids a tonne. That is, much more often than not it is helping out higher earning families than it is helping lower earning families. 

The result is a shift that makes our tax code less progressive on average. I have long advocated for policies that attempt to be at least neutral on the progressive/regressive spectrum. I would be OK with trying to remove that asymmetry, or at least removing it to some degree, if it was coupled with further policies that didn't tilt the spectrum so badly. For instance, one could imagine switching to the US model of allowing joint fillings (a sort of uncapped Income Splitting; Harper's version caps it at $50,000 transferred and $2000 profited), if this was coupled by a change to the income tax code that made it more progressive, or added benefits to single families or other ways to help out lower income families. Doing this would help to limit the odd asymmetry that the Conservatives have identified when motivating this policy, without the consequence of making our tax code less progressive.

Even the premise - that families with equal income ought to be taxed equally - doesn't necessarily hold. There are meaningful differences between a family with two parents who make $30,000 a year and a family where one parent makes $60,000 a year, such as the fact that in the former you probably have twice the number of hours being worked. I'm not convinced these two situations really ought to be taxed identically, nor that this asymmetry is a more important one than many others such as the asymmetry between single parent families and dual parent families which often have stark differences in the length to which resources go. 

In many cases, what can seem "fair" when one looks a specific policy such as a specific tax, turns out to be rather unfair when looking at society as a whole. Consider the idea of flat taxes, where everyone is taxed at the same proportion of their income. When thought of one its own, this seems like a very fair tax system and indeed many on right advocate for it and to some extent I can see why. The problem is that we live in a rather regressive world. The case for progressive taxes is to in some sense balance out the inherently regressive nature of our capitalist society so that when considering all these factors - and not just taxes - we get something a bit more equitable. So a "fair tax" may not actually be all that fair, and Income Splitting is precisely one such example. 

The political angle:
As Harper starts gearing up for a new election (and years of squeezing and some fancy accounting after many years of Harper deficits give us a surplus once more), he has been dribbling out various populist policies like this one. They are all tax cuts (he is a Conservative, afterall) but ones that are very targeted. There is the increase of the child fitness tax credit (which I support in principle, but rather it wasn't a tax credit which is an inherently regressive move when one has a progressive tax system). There is the increase of the TFSA to $10,000 per year which I have opposed with qualifications here. And now we have the income splitting move. 

These are quite different than Harper's initial big tax moves which cut the GST (which I support as the GST being a flat tax is bad for the regressive/progressive system) and cutting corporate tax rates (which I oppose). Both of those are big moves. These are much more targeted. And they are targeted right at their upper middle class, largely white Conservative base. To someone making $100,000 a year with a stay at home wife, they can get taxed less by splitting their incomes, get tax savings when they save, get tax savings when they put their kids into hockey, and so forth. To the single parent struggling to make ends meet, none of these do anything. It is one demographic being helped and another (one much more in need of help) being ignored. And it is a demographic being helped that the Conservatives know will help them win elections. 

While I can see the motivation and the appeal, I don't believe this is being done because the Conservatives think it is the right thing to do. Even former Finance Minister Jim Flaherty infamously believes it is not the right thing to do. They are doing it because it is a good political move. 
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Oct 29, 2014

Government's dominant role: redistributing wealth

The dominant effect of government on society is to redistribute wealth from the richer members of society to the poorer. One can support or oppose this idea, but as a simply descriptive point about what the effect of governments are, this is by far the dominant one. We live in a capitalist society that has a lot of forces which create inequality (which, again, one can support or oppose) and governments act as a partially countervailing measure, reducing the degree of inequality but hardly eliminating it.

There are two major sides: taxation and spending. From a taxation perspective the point is obvious; we have a progressive tax system that has a disproportionate share of government revenue coming from the wealth portion of the population. However, almost all major government spending programs also result in great equalizers. There are obvious things like social assistance programs for the poor, the elderly, the disabled and so forth. But everything from education and healthcare to minor aspects like government parks are predicated on a system that dispenses the value largely equally (everyone gets K-12 education regardless of income, everyone gets to enjoy government parks) despite being pair for rather unequally by the rich.

Healthcare: the great equalizer:
In a country like Canada, healthcare is one of the biggest equalizers of all. I have cancer (well had, it's all good now), which was unfortunate for me. I lost the lottery, if you will, and on this particular aspect of my life was less lucky than my noncancerous friends. However, despite being unlucky in this sense I was not put in any further financial inconvenience, and I only had to suffer through my surgeries and that was it. The excellent healthcare I received was, in effect, paid for by those who remain healthy and didn't need it yet are still taxed for it.

This is a good thing. If we had to choose a society under the veil of ignorance (ie we don't know what place we are going to have, such as whether we do or do not get cancer), we would want a society where the consequences are minimized when one is unlucky enough to get cancer. It smooths out the costs so that it is only the medical consequences, however daunting, and not added financial costs paying for healthcare, that affect an individual.

A point not always stated:
This point is fairly obvious, I think, but doesn't always get stated. It is perhaps one of those 'can't see the forest for all the trees' situations. In different ways, both the left and the right tend to downplay this basic reality.

People on the right tend to rail against the very idea of wealth retribution (Obama's infamous "spread the wealth" gaffe to Joe the Plumber is a prime example) despite offering only incremental tweaks to a system predicated on just that. Rhetoric from some parts of the left may give the idea that our government system is one that privileges the rich and the corporations on the backs of the common folks when in fact the government system is a massive distribution of wealth downwards.

An equalizer, but we are still unequal:
Despite the fact that we have this massive wealth distribution machine at the centre of our economy that taxes progressively more from wealthier people but spends either equally or more towards poorer people, our society is nonetheless still strikingly unequal. This is a function of having a capitalist society, as I will expand on more in a further post.

What the exact degree of inequality we ought to have is probably unknowable, there are certainly arguments that the status quo is still too unequal. On this blog I tend to argue that we should have more government action that results in reducing the level of inequality in our society. I advocate for a more progressive taxation system, a more robust social safety net, and stronger institutions that benefit wide swathes of the population, all of which works to reduce the degree of inequality in our society. One can agree or disagree on this normative point of what we ought to do, but I think the framing is nonetheless important. Those that advocate cutting of such programs and adding flat or regressive elements into the tax code should own the fact that they are reducing this equalizer and risking a more unequal society.

Unequal most where governments don't act:
Consider some of the most egregious places where inequality occurs, such as the contrast between the first and third world or the concentration of wealth in the top, say, 1000 people in the planet. It is in these most egregious examples where the great equalizer of government is either not present or isn't functioning meaningfully.

Take inequality between first and third world countries. Because governments largely operate at a national or smaller level, the act as equalizers within countries, but not between countries. Instead, the third world rely on only a small (often 1% or less of GNI) in charitable transfer from the first world. We don't have a global government structure that counteracts the global inequalities in the way that we have a national government structure that counteracts inequalities without our country.

For inequality at the very top, our progressive tax structures tend to max out in the hundreds of thousands in income. Indeed, there are various tricks whether capital gains taxes in the US or using offshore tax shelters and the like where the richest end up managing to game the system to pay an amount that ends up being rather far from progressive.

Social equality:
Governments have long had a role not just in this more economic transfer of wealth, but in various forms of social inequality. A lot of the inequality comes based on differences in race, gender, sexual orientation and the like. Before government action, society adopted structures that perpetuated this inequality. While it is perhaps minor in comparison to the big earlier wins in, say, the civil rights era, simple and obvious issues of equality today like marriage equality mean that gay people receive the same kind of equality that others do. 

In many ways inequality is one of the defining issue of our times. We can disagree on what we think is the best way to combat it, or to what degree it even needs to be combated. But to even start that conversation, we must understand how one of the biggest forces affecting the balance is the government. It is it's defining role.





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Oct 20, 2014

Tech on the Side: Apple numbers: languishing iPad sales a function ofthe phone subsidy model

The ability to make phone calls on a modern smartphone is now just one app among many. For most people it isn't even close to the most used app with Facebook, YouTube, messaging, games, and the like dominating usage. And it is also an app with many competitors like Skype and Google Hangouts and other VOIP phone services that will likely continue to grow in the future (imagine a future where mobile graphs are facebook account or email account centric, not phone number centric).

With the increase in phone size led by Samsung and picked up by Apple with the 5.5" iPhone 6+, we now get a spectrum of device screen sizes from 3.5" up to 10"+ at most sizes and price points in between. While some apps are still segregated by screen size (features or whole apps that are phone only or tablet only), for the most part you can do any of these apps on any device size. Except, of course, for phone calls. This is the main differentiator between phones and tablets, and when thought of as "just another app", it makes it seem rather arbitrary.

I generally am a big fan of extra screen size which makes a richer and more immersive experience - particularly for video, reading, and games - than smaller sizes. The unavoidable trade off is somewhat reduced mobility, and the avoidable trade off is whether it is a "phone" or a "tablet". People can choose where exactly they fit on the "bigger size vs lower mobility" trade off.

I have an old pre-Android Samsung stick phone and recently preorded the iPad Air 2 as an upgrade for my aging iPad 2. Effectively this means that I have the biggest - and thus best for me - experience for almost all the apps and then for that one app of the phone I am unbundling the experience by having to carry around the aging legacy phone for that rarely used phone app, but I get the benefit of a legacy plan so cheap that no cheaper are currently available in Canada after the 2 year contract switch.

New numbers from Apple show that my experience is certainly a rarity. While the iPhone is still growing well and a massive moneymaker, sales of the iPad have stalled for several quarters. Instead of the larger screen and better experience growing usage, the standard seems to be that people buy a smartphone first, and then they might also buy a tablet, in much smaller numbers. Especially with 5.5" iphones, it is hard to see why one would also get a 7.9" iPad mini. I think the larger device offers a better experience, but not enough to justify two devices to take around with you. Even aside from the cost, most won't want to carry both and there will always be unnecessary friction in the user experience between multiple similar devices. It is a truism that the best device is the device you have with you, and most won't have two.

Part of this may simply be that people disagree with me on the size vs mobility trade off, with people preferring the mobility of the smaller size. And part may be that for that one app - the phone - you really need to use a pair of earbuds or a bluetooth device as holding it up to your ear is cumbersome which creates an advantage for smaller devices. So it may be that people really do prefer that smaller size.

However, I think another part of this is based on the result of the subsidized phone model. A brand new top of the line iPhone or Android costs $199 on a subsidized plan, making the headline number pretty damned cheap. Most of this subsidization comes from selling overly expensive plans for that one phone app - extra minutes and the like. Back in the day, operators charged insanely high costs for very low data text messaging until message over the internet plans operating on effectively arbitrage forced first world operators to bundle text messaging for free, more representative of their true costs. However, these kinds of subsidization plans for tablets are either nonexistent or off in the background somewhere not usually notice.

This model where one primarily buys a voice+data plan on a subsidized smartphone where it is mainly the voice part that is paying for the subsidization, arbitrarily encourages people to continue buying phones and not tablets. This then means that when people decide to buy a tablet as well as a smartphone, it is usually not data equipped which then limits its mobility and encourages the smartphone use.

There are certainly advantages to smaller screen devices. But I contend that a reasonable portion of the large asymmetry between "phones" and "tablets" is not a function of people preferring smaller screen devices that are easier to carry and easier to use the phone app with. It is a function of an outdated business model that creates this sharp asymmetry between the two. Add in the culturally reinforcing effects that people tend to follow the buying patterns of others, and the upside down asymmetry between Apple's phone and tablet businesses can be largely explained. For myself, I'm happy with the 10" iPad Air 2 as arguably the best mobile device - phone and tablet - on the market with my cheap old legacy phone hidden in my bag for the rare times I actually want to make calls outside of wifi availability.

Consequences for the tablet market:
A somewhat strange phenomena is going to occur next quarter. The iPhone ASP is going to up now that the iPhone 6+ is a 100 premium (and that the value proposition on increased memory is higher). But the iPad ASP is going to go down as there is a new $250 dollar entry tier and the iPad mini 2 (almost as good as the iPad mini 3) is now $300.

 Indeed, Apple tablets are distinctly secondary in quality to their phones. This is most clear for the iPad mini 3 which didn't even get the new A8 processor (basically just Touch ID and the gold colour option). While the iPad Air 2 got much more significant upgrades, it still is behind the iPhone in terms of cameras, and new features like Touch ID are coming a generation behind. All of this paints the picture that tablets are having to drop in price and be somewhat less feature laden than their smartphone counterparts.

This is, I think, part of the same analysis on the subsidy phone model and the dynamic of phone first, tablet possibly second. As tablets don't get the big initial cost subsidy, and are perceived as an extra, they have to be cheaper, and hence they don't get all the features to drive down costs. This reinforced the idea that tablets are lesser than phones and perpetuates the asymmetry. If the tablets were getting all the latest perks - and and given the same priority in subsidy that phones get - I suspect a lot more would be sold.
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Oct 3, 2014

Why Canada is going to war in Iraq: From Harper's Mouth

I recently wrote a post about the motivations for middle powers like Canada to join international coalitions for wars such as the recent war in Iraq.

Now that we have seen Harper official justification for the war to Parliament, it is worth noting how closely what I said tacked with what Harper himself said. We don't have to do some form of loose guesswork as we do with, say, Russia where the motivations of the leadership is wildly different from their public statements. Here, Harper is proudly and publicly proclaiming more or less what I suggested.

Most of the speech is identifying how ISIS are bad people doing bad things that ought to be dealt with. However, for a middle power like Canada the question is why do we specifically need to get involved. Surely, adding a few CF-18s and logistical support to the international coalition isn't a make it or break it difference on ISIS's capabilities. The section of Harper's speech justifying why specifically Canada ought to be involved is quite short, and quite telling:
"Indeed, we should be under no illusion. If Canada wants to keep its voice in the world, and we should since so many of our challenges are global, being a free rider means one is not taken seriously."

We are going to war because Canada's leadership wants to be able to sit at the big boys table on the international stage, with the semblance of influence that implies. Our small contribution won't make us safer, nor does it provide a good return on investment when thought of from humanitarian grounds. But neither of these is the goal. The goal is to maintain our credibility and limited influence on the international stage. 

For many middle powers like Canada that didn't follow the US/UK into the war in Iraq a decade ago, it was long a mark of pride, symbolizing that we were willing to engage in liberal interventionism in the "right" war of Afghanistan while standing up to the imperialism of the US in the "wrong" war in Iraq. As the years dragged on and Iraq descended further and further into chaos while the ostensible justifications for the war went up in smoke, this sense of moral superiority only increased. 

ISIS is largely a product of the failure of nation building in Iraq, having existed under one name or another since the civil war in Iraq kicked off by the US invasion. The world is rightly horrified at the atrocities ISIS have committed and the desire to do something - anything - to stop it is certainly well founded. Unfortunately, while bombing ISIS may achieve not unimportant goal of stopping their advance, it is merely a bandaid on top of the larger structural problems that simply haven't been resolved in a decade of war in Iraq and show no signs of being resolved any time soon in Syria.
Regardless, nothing in the above paragraph explains the decision to go to war. A decade ago Harper wanted to follow the Americans to war. Now he finally gets his chance to be included. It is the inclusion that matters and forms the core motivation, not any specific security or humanitarian objective. 
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Sep 27, 2014

Harper's small but important lie on Iraq

Harper got caught in a lie important enough that the US Secretary of Defence's office took the somewhat rare move of embarrassing Harper by telling everyone it was indeed a lie.

Namely, as reported by Global News,  Harper made something of a big show that the US was asking for Canadian help in the newest war in Iraq. Turns out, it was the other way around, where Harper asked the Americans if Canada could help out and the document Harper was referring to was a response to this.

Now, does it really matter who asked whom first? At the end of the day, after all, it should be the actual decision to engage or not that matters, and a little change in the initial framing doesn't have a large consequence. However, I argue both that it does matter and, further, that the lie is telling of the larger structural relationship between the Canada (and other middle powers like Canada) and the US.

Firstly, going to war is a big deal and our leaders have a basic responsibility to be transparent about the motivations that leads to the decision to engage. We have seen in the past (ironically with Iraq being the most egregious example) how distortions in the initial framing can lead to public support for a war that subsequently proves to be a complete disaster whose initial framing was entirely bogus. Leading aside the question of whether Canada should or should not engage in Iraq, that decision should be made objectively without our leaders trying to falsely spin the scenario into one that is more politically palpable.

I once wrote a post that discussed how middle powers like Canada - or more correctly their leaders, if we wish to avoid the anthropomorphizing - want to bolster their international credibility by being participants in global actions like wars. They wish to be seen as active participants who have influence and power. Great powers (mainly the US) mainly want these international coalitions that include partners like Canada because it lends legitimacy to their actions. These rather different aims lead to the broad international coalitions in wars like Afghanistan.

As Wikileaks cables documented after the fact, when it came to Iraq, Canada quietly offered to help out with various naval and logistical support. It was clear to Jean Chretien that the Canadian public didn't want "boots on the ground" but whatever else help Canada could be behind the scenes they were more than willing, as long as publicly it appeared that Canada was against the war. The Americans rebuffed this. The point was that the US didn't care about the little bit of logistical support, they wanted the legitimacy that would only come from Canada being loud, prominent participant, not a quite help on the sides.

This situation repeats that lesson. The middle power, Canada, wants to be involved, it wants that perception of influence and importance on the world stage. But Harper knows as well as Jean Chretien knew that the Canadian public generally doesn't like wars and framing the war in a way acceptable to the public is of key importance. Here, it was that we were responding to a request for help from the Americans opposed to trying to elbow ourselves into the grown up table is key. For the superpower, however, the little bit of logistical support and a few F-18's that Canada may offer are likely not that important. What is important is the legitimacy that a Canadian inclusion would provide to the war. That legitimacy is undermined when it appears like the Americans are trying to bully the Canadians into being included but considerably strengthened when it appears as if it is Canada who is trying to join in on the noble fight.

Paul Calandra's parliamentary apology:
This same basic point was emphasized in this weeks charade during Question Period. Mulcair asked a perfectly reasonable question about the length of engagement and Parliamentary Secretary to the PM Paul Calandra responded with a complete non sequitur, which led to something of a tangle between Mulcair and the Speaker and, finally, after much derision in the media, a tearful yet still nonsensical apology from Calandra. That almost all answers (and a good number of the questions) ever asked or answered in Question Period are just ridiculous partisan trolling as being obvious to anyone who has ever tuned in and speaks to a much larger problem in our Parliamentary system, particularly during majorities where the majority party can simply evade any semblance of transparency.

In this specific issue, here we are again musing over the idea of contributing to a war - and issue one might think is of some importance - and the Conservatives are still quite happy (for Calandra's remarks were clearly appreciated by caucus) complete evading any attempt to have any form of dialogue on the issue. What we get is Harper falsely trying to frame the issue and getting rebuffed for his lies from the Americans, while in Parliament his secretary makes absolute zero attempt to engage in any serious way. This is how we choose to go to war in Canada.
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Sep 8, 2014

Olivia Chow loses when the race is about Rob Ford

On paper, the Toronto Mayoral race should be a cakewalk for the NDP's Olivia Chow. Consider, it is down to two conservatives who will split votes on the right and a single progressive on the left, from a city who has previously had the political makeup to elect NDP candidates like David Miller. Indeed, part of the failure of the left in the 2010 race was because of vote splitting on the left that not only won't hurt the left, it now hurts the right. 

But of course, it isn't any two conservatives, it is a generic fill-in-the-blank conservative in John Tory and, well, the indescribable Rob Ford. While for most people in most cities, municipal politics is a low key and somewhat mundane affair, in Toronto everyone knows about Rob Ford. Everyone has an opinion of Rob Ford. Everyone either really likes, or really hates Rob Ford. Rightly or wrongly (and I very much think it is wrongly) this election is going to be about Rob Ford and this central fact tilts everything.

It is a chicken and egg problem. If the number one goal is to get rid of Rob Ford, you go with the person who appears most likely to win. And the person who will be most likely to win is the one that is getting all the support. Right now that is John Tory.

This isn't about left or right, it isn't about this or that transit plan, it isn't about Chinese immigrant vs quintessential white male politician, it isn't about the NDP or the the PCs, it isn't about contrasting visions for Toronto, it is about who is most likely to beat Rob Ford. That's it. 

I like Olivia Chow because I believe that her values and policies are in the right place, not because she is particularly adept at portraying the impression that she alone is most likely to win an election. A race about whether you can beat Rob Ford isn't the kind of race she will excel at. 

While Rob Ford's long circus of nonsense is as unacceptable and ridiculous as one can imagine, what has always been most dangerous about Rob Ford is that he might be able to enact some of his far right Tea Party agenda. Thankfully, council blocked him for the most part, particularly after his first year and it has been a long time since he was setting policy.

The problem is that when one thinks of reasons not to vote for Rob Ford, one can easily come up with a laundry list of crack and alcohol and lies and whatever else. But what probably isn't at the top - what may not even make it on the list - is a failed vision for Toronto.It is that failed far right vision for Toronto that is most disastrous and that is the part that I believe Olivia Chow best represents an antidote to.

When the conversation is about the vision for Toronto, I think that Olivia Chow is an able candidate who can win the election. That is her strength. She can win hearts and minds over this vision. But as long as the conversation is focused on Rob Ford - for him, against him, around him - this simply won't get airtime. In the Rob Ford-centric conversation we are having, John Tory looks to be the next mayor of Toronto. 

Olivia Chow is going to have to fight hard in the next couple weeks to put the conversation back on her terms. 
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Tech on the Side: Amazon vs Apple

While Apple is a wildly profitable money printing machine that hoards its cash and returns billions to shareholders, Amazon makes no official profit. As Benedict Evans points out, this is just a sleight of hand for Amazon has numerous profitable businesses, it is just that it reinvests every penny back into the business (or, more correctly, all its various new subbusinesses) and has skyrocketing capital expenditures to go with its skyrocketing revenues. 

Which is right? Ought Apple to be reinvesting its phenomenal wealth? Ought Amazon to be returning money to shareholders? I argue that, broadly speaking, both are taking the optimal strategy and the difference is a function of different key products. 


Both companies are premised on an idea which after it was implemented is obviously and vastly superior to what came before it. The smartphone/tablet market is enormous, and everyone recognizes the value that smartphones create over the previous era of cell phones and how integral they are to so many of ours lives these days. For Amazon, the ability to have enormous selection with low prices, all done from the comfort of your home (or smartphone!) is vastly superior for tonnes of things than going through a brick and mortor store. They are both fabulous ideas, and as the big first movers to drive the innovation of these two great ideas, Apple and Amazon get richly rewarded for it. 


When you are clever and lucky enough to be the first mover on those once in a decade big ideas, the goal is to capitalize as much as possible. Apple clearly has done this is spades. It has completely dominated taking most of the profits (with Samsung, nobody else makes anything meaningful) from this industry and while it still probably has room to go has saturated the developed world probably something close to as much as it reasonably can with its business model. And it has done this all charging very high margins and being able to print billions and billions of profits. 


For Amazon, however, the market is rather different. If you consider online retail, it undoubtedly crushes everyone. If you consider retail generally, however, Amazon takes maybe 1% (after ignoring gas, food, building supplies, etc). Apple can't realistically expect a 20x revenue growth, unless there are many iPhone level innovations out there none of us can think of that only Apple can. But is it so unreasonable to imagine a not too distant future where people rarely shop in physical stores and, say, 20% of US retail is through Amazon? 


Amazon has so much more room for potential growth than Apple does that they are justified in doing everything they can to grow. This means pouring all of that money from the profitable portions of Amazon into the new and growing portions of Amazon to try and get that growth. There simply isn't a need to waste long term potential by pushing for on paper profits right now. 


On a related note, one of the sillier criticisms of Apple is that it is somehow lacking in innovation because it hasn't come up with a new ipod/iphone/ipad category creating device that completely transforms the entire industry or creates a new one from thin air. Possibly the iWatch will be added to the list, time will tell. The problem is that such massive, industry changing innovations are incredibly rare and one can't just will them into existence, regardless of how much of an innovative genius you are. The 2007 iPhone was certainly a remarkable piece of innovation and now the smartphone market is measured in the billions and all the phones are something like that original iPhone. But how many markets that sized are actually sitting there ripe to be innovated given current technological capabilities? I can't think of any, and I doubt any that criticizes Apple for lack of innovation can do so either. 
Read more » "Tech on the Side: Amazon vs Apple"
Jul 27, 2014

The Minimum Wage from first principles

The minimum wage, like most government policies, is first and foremost a form of wealth distribution. There are winners and losers from the distribution. The biggest group of winners is the obvious one: low wage workers who now get paid more. Raising the wage floor also raises wages somewhat for workers above the bottom as employers needs to differentiate on wages to attract higher valued workers.

The losers depend on how companies react to a minimum wage.  If they fire low wage employees to compensate, then those fired or not hired suffer and the unemployment rate will rise. If they raise prices of their goods and services to customers, the public quite broadly will suffer. In particular, you would have a lot of middle class customer subsidizing low wage workers in retail and other service industries through paying higher prices. And if companies take a reduced profit then the relatively wealthy will be the main losers.

The exact breakdown of these three main reactions is an empirical problem that requires data, but for now let us just dispense with one oft quoted claim: that companies will never take lower profits, but will always adjust to hurt either employees or customers. This may happen occasionally, but economy wide it would be incredibly unlikely.

Consider, if a company could get by with less employees, or remain competitive with higher prices, they could just do that now and increase their profit. Instead, reducing employees is likely to lower the companies ability to earn money, this is why they hired the employees in the first place. The marginal benefit of firing an employee and or raising a price needs to be recalculated given any change in market conditions and after the distortion that the minimum wage applies, it would only be occasionally true that everything balances such that one can raise prices and fire employees exactly in proportion to the lost profit due to wage increases. In general, it won't be 0% the reduced profit factor and thus there will be a net wealth transfer from the ownership class to the low wage worker class.

Let us accept some form of normative goal where we aim to help out the disadvantaged in society and reduce the level of inequality that persists. Seeing the problem just at this level of wealth distribution, the reason to support it is due to the increased wages of low wage workers and the reason to oppose it is due to potential for increased unemployment among people competing for low wage jobs. Both are good or bad relative to this goal. There is certainly a likely undercurrent, particularly among the political right, that opposes minimum wage for that other group of losers - business owners - in effect rejecting the normative goal, although since it is hard to feel sorry for the Waltons, their arguments usually are about the potential for increased unemployment.

The Macroeconomic view:
Thus far we have been doing microeconomics; that is, we have looked at the options a specific company could take and who that helps or hurts. However, if we look at this from a macroeconomic level we know that different market distortions have different, often difficult to predict, macroeconomic consequence. For instance, wealth distribution in a vacuum gives dollars to certain people and takes it away from other people. However, the macroeconomic effect is typically to grow or contract the economy based on different wealth redistributions. So opposed to just listing winners and losers, ought we expect this distortion to result in favorable macroeconomic consequences?

It is well known that when the government spends money, there is a multiplicative effect in net economic growth. As in, most of the time that the government spends a dollar, the economy grows by some amount that is either more or less than a dollar, and only coincidentally would work out to precisely a dollar in growth, at least in the shorter term. Things like unemployment benefits and infrastructure spending have a multiplicative factor greater than 1, and things like tax cuts for the rich and military spending have a multiplicative factor less than 1. The basic reason this exists for policies like unemployment benefits is that this money immediately goes back into the local economy because unemployed people really need to spend it on the basics, thus increasing aggregate demand and growing the economy. Contrast this with money to the rich which often has a low velocity, staying in bank accounts, or finding its way offshore, which has a lower increase in domestic demand. . 

Low wage earners are in this category where their extra money quickly finds its way back into the local economy, thus driving up demand. Money taken from high wage earners also is taken out of the economy and reduces demand, but the multiplicative effect of this is lower, which is the key. Net aggregate demand creation percolates through and helps everyone (although unequally) by creating more jobs and more profits.

This is the basic reason why we get the following statistical quirk: studies don't tend to show a big jump in unemployment following minimum wage increases. One of the three ways companies can adjust is by firing people, and they surely do some of thus, but it seems to be more or less made up for by increased demand in the economy resulting in increased jobs. What is left is largely the redistribution from the wealthier owner class to the low wage earning class, with associated GDP boosts.

Why does this have to be done by the government?
The nature of the boosted demand by a minimum wage law is that is broadens the economy generally, but isn't focused specifically on the companies likely to use minimum wage employees. Companies like McDonalds might suffer a lower bottom line if they can't fire employees or raise prices without losing business, but Apple might benefit as more low wage employees can purchase their fancy devices and have a lower dependence on low wage workers. Because the benefits are delocalized no individual company reaps the benefits of increased demand if they act unilaterally. Most of the result of giving extra money to your employees is that they spend it somewhere else. But if lots of companies do this, the benefits spread out widely. It is a classic tragedy of the commons scenario where the benefit is only realized if the government mandates it - at the largest jurisdiction possible - otherwise companies are always incentivized not to engage unilaterally.
Read more » "The Minimum Wage from first principles"
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