Policy Debate Anybody?

Looks like over at Relentlessly Progressive Political Economy they are trying to kick off a left policy debate. What are your top priorities for the upcoming elections?

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Ok we will bite. We would add to their list a Foreign Policy item which demanded a fundamental rethink of the role the Canadian military is going to play in the future alongside a recasting of Canadian Foreign Policy in line with international solidarity, development and human security instead of the pre-emptive war making direction it has now taken first under the liberals and now even more so under the conservatives. Afghanistan is a liberal Tory same old story.

 

Canadian Observer is up for Sale or Transfer

We have decided to sell off Canadian Observer.  We are willing to take raw cash or a paragraph about why you are the individual or individual’s to take over the blog.   The blog is well established and has good potential for growth.

Interested parties can reach us in the comments section.

 

Human Capital, the Real Cost of Education and the BS of Affordability

By Goodwin Ginger

The Spin

With so many options to finance today’s higher education costs who would not want to go to university? The federal and provincial government say they are dedicated toward helping students invest in human capital. With Student loans, interest relief, scholarships and an Income tax credit on the interest you pay on your loans, whom can’t afford to go to university and help Canada upgrade the nations human capital?

The Facts

Helen decides to pursue a career in the social sciences and humanities. Helen works summers, gets scholarships and graduates with an honours degree in four years. After completing her undergrad degree she decides to go on to graduate school and pursue a masters. She completes this in 1 year. She then decides to pursue a Ph.D., Which she completes in 6 years.

Her total time in school is 11 years at a cost of tuition, books and living costs of $12,000 per year or $132,000 total cost not including forgone income while in school. How does Helen finance this $132,000 you ask? Well she is a bright young woman so she receives scholarships, bursaries and TA employment. Even so she can only manage to rustle up $96,000 of it herself so she borrows an additional $36,000 from the federal and provincial governments.

The Scenarios

Scenario A: the best of all possible worlds

Upon successful completion of her Ph.D., in Liberal Pre-emptive War she receives a tenure track position at the Munk Centre for International Studies at a starting salary of $74,000. Wow you say that is one helluva salary. Not really her brother got one of those trade degrees in law and is earning well over $100,000 a year (5^th year call and he works for the Empire). In any case Helen receives a letter informing her that it is time to pay the piper. She decides that she wants to pay her loan off as quickly as possible so as to minimize the amount of interest she will pay. So she decides to amortize her loan over 5 years at the government’s interest rate of 8.25% for a monthly payment of $847.50 per month. This means that in addition to the principle Helen will pay $14,850 in interest. For a total cost of borrowing of 50,850 and total education cost of $146,850.

Scenario B: the most likely in this world

Helen, although she be bright and quick of wit made the fatal mistake of doing a degree in Why the American Empire is a Plague Upon Human Progress. As such she receives a 3 year contractually limited appointment at York University teaching in a field far, far away from her major research interest at a yearly salary of 55,000. Helen receives her consolidation agreement form from the provincial and federal governments and quickly realizes she really has no choice but to accept a 12 year amortization period @ an annual interest rate of 8.25%. Helen makes equal payments of $497.50 for a total borrowing cost of 71,640. Here is the math: $36,000 in principle + $35,640 in interest = 71,640 for a total education cost of $168,640. What you say, Helen has to pay back almost twice her principle amount because she choose to study why the American Empire is a Plague Upon Human Progress. Yes Helen dear, one way or the other you are going to work for the family.

The unknown knowns

Ah you cheeky little devil you failed to mention the government’s generous Income Tax deduction for interest paid on student loans. Quite right you are chap! Lets do the math.

Take scenario A. Why scenario A, you ask? Because in scenario A Helen’s top marginal tax rate is around 45%. This means we can calculate the maximum value of the generous tax credit. Here is the Kicker. You can only claim 17% of the total interest you pay per year on your student loan. In Helen’s case this works out to $504.90 which means Helen will get a refund of …wait for it … $227.20 per year or $1136.02 over 5 years. Which drops her total education cost from $146,850 to $145713.98. Wow what an inducement to invest in human capital.

I would do the calculation for scenario B but I am afraid Helen will faint.

Forgone income: the real cost of education

Let us assume, as Helen is bright and ambitious, she could have been earning $2,000 a month for the eight months she was in school per year during her undergrad. That works out to $16,000 per year for a total of $64,000 which must be added to the cost of her BA which was $50, 000. For a total cost including forgone income of $114,000.

Let us assume for her Ma year with BA in hand she could have earned $3,000 a month for the 12 months she was enrolled which comes to $36,000. Adding this to our total above we get $150,000.

Let us assume for the 6 years she spends as a graduate student she could have been earning $48,000 a year, which sums to $288,000. Adding this to our running total we get $438,000.

Wait you say, that is not a fair accounting of forgone income because she would have had to pay for her living regardless of what she was doing. Quite right. Let us subtract 132,000 for subsistence costs over the 11 years ($1000 per month). That gives us a total of $306,000. Yes, kids that is the total value/cost of your human capital.

Well, ok, $306,000 may be the total cost of her education including forgone income less living costs but you said she got scholarships so it is not the total cost to her. Quite right you are. Helen did receive a total of $5,000 in scholarship money during her BA, $4,000 during her Masters and $72,000 during her Ph.D. for a grand total of $81,000 in free funding. This brings Helen’s total cost out of pocket to $225,000.

That tax credit is still looking like a scam of the first order. And what you have not considered is the obscenity of charging 2.5% above the private banks prime when the government borrows money much cheaper than that. Yes kids the government is making money off of student loans. Not only have they raised our taxes by allowing the cost of education to increase (it is a user fee on a public good), but they have also added insult to injury by making money off the money that they have loaned us to pay for the initial increased tax levy on education.

How are those marginal tax rate reductions looking now?

What is to be done?

In the short run, pay off that student loan as fast as possible. There is no financial or tax incentive to prolong your payments. You can amortize over the full 12 years in order to guard against unforeseen living expenses but make additional payments whenever possible.

In the medium run, tell your government to quit the bullshit and fund education by reducing the cost of tuition. Education would be expensive without tuition. In our example above, tuition only accounts for $66,000 of the total cost of education (assuming $6,000 a year in tuition).

In the long run, as Keynes said we are all dead, but tuition should be free.

 

NDP Keeps Pushing Corruption Line: Big Waste of Time it is the Environment Stupid

Voters memories are short and even shorter when it comes to the message of corruption. Indeed after nearly twenty years of media and right wing spin insisting that politicians, political parties and the government are basically corrupt the NDP’s message is likely to achieve the response “so what else is new.” Not only that, the Libs are going to argue that Dion represents a change in direction away from big money and influence peddling toward the centrist values of the mushy middle and the restoration of technocratic public policy. Given Dion was unscathed by Gomery it is going to be hard to paint him as a corrupt insider. Indeed we suspect his unwillingness to play ball with the back room-boys in the past is why he was sparred the indignity of Gomery: he was too principled to be allowed into the inner sanctum. If the NDP hacks were smart they would go after Dion where he is vulnerable; indeed what he proclaims is his new-found cause the environment. The question should be, if Dion is so enamored with the environment why is his track record so poor in this area?

The NDP ought to be pointing this out and at the same time setting out a bold environmental plan of its own. There are lots of near term environmental initiatives that could be developed at little or no cost to business if designed right. Here is just one example. Mandatory conversion of all lighting to energy efficient sources. Estimates vary but this simple shift can realize energy savings of 15-30 percent. To make this work the government merely needs to offer right-offs valued at 125% of cost and allow them to be written off over two years. A really robust plan would extend this to the household sector by dropping the GST on all energy efficient lighting products along with a personal income tax deduction of $200. A really robust plan would create tax incentives for the development of general source LCD lighting. In the end such a program would also have the advantage of lowering energy costs to business and thus increasing their margins. There are any number of plans that could be developed which utilize existing technology and taken togeather would represent a real saavings in energy consumption. Using the tax system as incentive for compliance and a fine based enforcement system is the only way to move forward.

Politically speaking, the beauty of such a plan is that it provides both carrots and sticks and does not require provincial cooperation.

 

Warren Kinsella’s Group Linked to the Crack Down on Dissent at York University

What a tangled web we weave when at first our guilt conceives. Interestingly one the groups named in Prof Nobel’s suit, the Canadian Jewish Congress belongs to The Canadian Council for Israel and Jewish Advocacy (CIJA) the umbrella organization which provides strategic coordination for a couple of high powered lobby groups in Canada. One of its member groups is the Canada-Israeli Committee of which Mr. Kinsella is listed as a member of the board of directors. Kinsella’s group arrogantly proclaims that it is “the official representative of the organized Canadian Jewish community on matters pertaining to Canada-Israel relations”. I did not know that all the Jews in Canada held a vote on who their “official” voice was! Talk about pandering to anti-semites.

In any event and more importantly it is CIJA which was the target of one of Prof Nobel’s investigations. In his 2005 article which appeared in Canadian Dimension, Nobel argued thus:

This is not about Jews. It is not about race, ethnicity or religion. It is about power. The new Israel lobby in Canada — the Canadian Council for Israel and Jewish Advocacy (CIJA) — has enormous power, derived from abundant resources, corporate connections, political associations, elaborate and able organization and a cadre of dedicated activists. Since its inception several years ago, this hard-line lobby has used its power, first, to gain political hegemony and impose ideological conformity on the matter of Israel within a heretofore diverse Jewish community, and second, to influence government decisions and shape public opinion regarding Israel — ostensibly in the name of all Canadian Jewry. From the outset, a primary focus of this lobby’s attentions has been the university campus, alleged centre of anti-Israel sentiment, conveniently construed as anti-semitism. Over the last two years, the lobby has by various means attempted to pacify these campuses and bring them into line, particularly Concordia and York. While the lobby has made some significant gains, at York their effort has been stalled.

We wonder if Kinsella and his group will have the stones to issue a statement clarifying their position with regard to academic freedom, freedom of speech, and freedom of assembly?

 

 

PROF DAVID NOBLE SUES ISRAEL LOBBY

For immediate release: PROF DAVID NOBLE SUES ISRAEL LOBBY

FOR IMMEDIATE RELEASE

This 25 million dollar lawsuit for defamation and conspiracy, filed in
Ottawa on November 15, will be served Tuesday November 21. Defendants
include the private corporate entity York University Foundation, pro-Israel
lobbying and fundraising organizations Hillel of Greater Toronto, the United
Jewish Appeal Federation of Greater Toronto, and the Canadian Jewish
Congress, Ontario, and their agents.

They are accused of trying to harm, silence, and malign York University
Professor David F. Noble because of his critical investigations into
external influences on Canada’s third-largest public university. Summarizing
the significance of this lawsuit, professor Noble stated: “In an effort to
suppress my inquiries, publicly destroy my reputation, and isolate me from
my peers, the defendants launched the most vile kind of personal attack –
attempting to stigmatize a Jewish man as an anti-semite – because I dared
examine and expose their pernicious activities. These rich and powerful
people pretend to be friends of higher learning but are in fact its worst
enemies. They think they have bought themselves a university. They haven’t.”
For more information, contact David Noble at 416-736-2100 ext 30126, or
416-778-6927.

Court File No.:
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DAVID FRANKLIN NOBLE
Plaintiff

 -and-

BOARD OF DIRECTORS OF THE YORK UNIVERSITY FOUNDATION 2001, THE YORK
UNIVERSITY FOUNDATION 2001, PAUL EDWARD MARCUS, LORNA MARSDEN, HILLEL OF GREATER TORONTO, HILLEL AT YORK UNIVERSITY, DORI BORSHIOV, ZAC KAYE,

TALIA KLEIN, TILLY SHAMES, CANADIAN JEWISH CONGRESS (ONTARIO REGION), JOEL RICHLER, UNITED JEWISH APPEAL OF GREATER TORONTO
Defendants

 

Why Does Stats Can Have Such Contempt for the User?

Alt title: Why does Stats Can Suck So bad?

Let my qualify. Stats Can, on the collections end, is a very robust and professional organization. However on the data delivery end it is an onerous, counter-intuitive, expensive service with a Byzantine logic to the organization of its data. Really, I had forgotten how crappy it was until I had to explain to an undergrad how to go grab some time series data on real hourly wage rates going back 76. Keep in mind the student was accessing the data through CANSIM II apparently the research friendly portal to Stats Can data. I would hate to see what they do when they are not trying to be user friendly.

Stats Can seems to have the attitude that their data should presented in the most convoluted least user friendly way. Presumably to keep the non-experts out. And what is with the shitty state of the provincial time series data and the general refusal to make consistent series that go back to at least the 1960s. Either Stats Can is cashed starved or it is run by the equivalent of old-school linux geeks that have no time for pre-compiled drivers.

There is a reason why so many researchers who work with time series data choose to work on the US. First you do not have to be a member of Academic institution or a wealthy Think Tank to get access to the data: it is on-line and its free. Second you do not have to know the exact title of the series you are looking for. Indeed on some of the official US sites the data is thematically organized in easy to interpret categories. Third many of their official sites provide internationally comparative data sets. Next time I am sending my students to the American data.

 

Western Trust Capital Threatens Coup D’etat

“I can tell you, if there is nothing done to offset the damage that they’ve done, we will personally — myself and other CEOs — will do everything in our power to see that there is a change in government, and it will start right here in Calgary,” said John Dielwart, chief executive of ARC Energy Trust and the coalition’s chaiman. “It will happen in Alberta. This is not going to go away.”

What an excellent case study in the real workings of capitalism and the attitude of monopolists towards the democracies which give them succor. Monopolists you say. Well yes. The very fact that Income Trusts enjoyed a state granted tax advantage over other corporate forms made trusts a form of state created private monopoly. That monopoly privilege has now been taken away and the response of the monopolists seems to be unconstrained outrage:

“‘I’ve never seen anything like this in my life, what they can do,’ he said of the government’s decision. ‘If this happened in the regular business world, you’d be sued, you’d be arrested’”.

We do not need left luminaries like Marx to describe what is going on here: Adam Smith will do just fine. Adam Smith said of the monopolists of his time.

“This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.”

 

A Sober Look at Income Trust Valuations: Drinking coffee will not help

By Goodwin Ginger

 

The Income Trust issue is rapidly degenerating into a chicken-little like tale. Some bloggers are claiming that 1 million Canadians are $32,000 poorer and that this marks the beginning of a TSX meltdown. Clearly it is time for a sober analysis of Income Trust valuations to be undertaken.

What about this claim that 24 billion has been taken away from unit holders of trusts?

Never mind that the figure of 24 billion includes would-be trusts such as BCE and never mind that the ownership of trust units, like all asset classes save for homes, is highly concentrated in the top income quintile. More to the point, it is the valuation of trust units (think equity) as an asset that has been affected by the Cons’ taxing of trusts not distributions per se. It is true that the sector lost some 18% of its value in the last two days but there are signs that it is stabilizing.

But the larger point is this: no pensioner has lost a dime unless he or she sold her units in the trust over the last two days. True their assets, if they were to sell them today would not be worth what they would have been if they sold them last Friday.

But that is no way to look at the matter. Why? First because it assumes that investors hold trust units primarily for their valuations and not for the revenue they generate in terms of distributions.  And the tax changes do not change anything at the level of the individual investor.  Second, because it assumes everyone bought their units on Friday. To see what I mean lets graphically depict how the chicken-littles are telling the story. They simply plot the intra day income trust index and wham look what the Cons did.

 

What they do not tell you is that there appears to already have been a partial correction in progress prior to the announcement by the Cons. If we take a look at the one month plot we can see that trusts had peaked prior to the Cons’ call.

Still you say: “the one month plot paints a fairly grim picture no?” No, because like all time series data the details are in the time frame. Lets take a look at what happens when we take a look at the one year plot.

To be sure the Cons’ announcement destroyed a years worth of capital gains and then some. But these were paper gains. The only pensioners that are loosing out are those that sold all their units today and if they bought them a year ago they would not be much worse off. Moreover, if we push our time frame back two years we see that the valuation story looks much different.

 

Oh that changes things does it not? If you bought half your trust units two years ago and half a year ago you would still be a little ahead if you sold all of your units today. And if you bought all your units two years ago and sold them today you would have beat inflation on the value of your asset which is the key thing on a cash bearing investment. Also notice that there was similar decrease in magnitude a year ago: who caused that we wonder? Now for the real cool graph. Lets take a look at the three year plot.

Yes perspective is everything. If you bought into the trust sector three years ago you would, with the Con induced correction factored in, have incurred a 14% capital gain. Not a banquet but hardly a disaster. And what is more, this is a capital gain remember your trust units are still throwing off cash in the form of distributions. Hmm anyone else smell roast chicken?

What about the claim that the trust correction is going to drag down the whole TSX? Bullocks we say. Let us take a look at the TSX composite one month plot.

 

Wow it really is not the end of the world, the sky is not falling I guess the intra day movements really are about as telling as tea leaves: perfect information for the pundits and partisans but nothing you would want to bet money on. My advice, stop drinking so much coffee and get some perspective.

Let us get back to the real issue which is simply this. The move to tax trusts is progressive as it widens the tax base on capital. Pensioners would not be in the market if were not for the Liberals refusal to build a real and robust public pensions system and instead decided to force Canadians into the markets which go up and down for a whole host of reasons.

 

Cherniak Wonders if Kenney Screwed Up

Cherniak is right Kenny did screw up but for none of the reasons he thinks. We suspect it is probably an indication that Cons are getting ready to announce massive capital gains cuts which will apply to all asset classes including trusts. Such would be sufficient to pump the froth back into the markets. The Cons are going to get to run in the next election as protectors of public purse and friendly free marketeers at the same time. If we are right, Kenney’s screw-up consists of letting the cat out of the bag. But then again it was already out of the bag.  It looks like the cover for the capital gains tax decrease is going to be productivity.