'It's All About the Money Stupid'

Like the vast majority of my colleagues I support the use of carbon taxes to encourage households and industry to reduce their consumption of fossil fuels. We economists believe in the behavioural impacts of price signals, so of course we support making it more expensive to consume fossil fuels and emit manifestly harmful CO2  and other greenhouse gases into the atmosphere. 

I understand the scepticism that many people have (and cynical politicians exploit) about the need for and effectiveness of carbon taxes. People will materially reduce their consumption of fossil fuels when reliable alternatives are developed, affordable and widely available. It will be technological progress, not marginally stronger price incentives, that will make the real difference.

Still, whatever one's view regarding the importance of its incentive effects, there is a very compelling and urgent case for carbon taxes that I think many people understand and could accept. In the words of former President Clinton, albeit in a different way for a different reason: 'it's all about the money stupid'.

We know that as hard as we try, we will not achieve zero carbon emissions for many years, not in Canada and certainly not globally. And even then it may take years after that to extract carbon from the atmosphere in order to reduce concentration levels to a level that will meaningful reduce greenhouse gas effects. What that means is we can expect the increasing frequency and severity of storms, fires, floods and other climate change-related events to continue. And that in turn means we will need more financial resources -- more tax dollars -- to invest in the very wide range of measures that are urgently needed to reduce risks, minimize damages, compensate victims and rebuild and recover in timely and resilient ways. 

I've heard a number of understandably very distraught people demand that those responsible for human-caused climate change should be called upon to pay compensation for the material damages that climate change-related disasters have. They are thinking of course of the major oil companies and other suppliers of fossil fuels. But who are in fact responsible. It is convenient to target big oil and other fossil fuel companies as the fundamentally guilty parties. And there may be many good reasons to go after those companies for tax, environmental impact or other reasons.  But in reality it isn't the supply of oil, gas and other fossil fuel products that is the problem. It is the demand for oil and gas that drives their production and supply, and it is the use and combustion of fossil fuels that results in greenhouse gas emissions. 

If we want those responsible for greenhouse gas emissions to pay for the increasingly severe climate change-related damages those emissions are causing, it is household and industrial consumers of fossil fuels that we have to target. And that is precisely what carbon taxes do. 

But we need more than the tax. We need to dedicate the revenues that carbon taxes generate to desperately needed compensation funds -- more generally to finance measures that will help to prevent, mitigate, compensate and recover from the climate change-related disasters we are facing and will continue to face for many years..

These are unsettling times. But there is so much we can and should be doing to help communities minimize costs, respond more effectively, support impacted people, business and communities,  and recover in a fulsome and timely way. Commissions of inquiry, resource management agencies, municipal officials, fire protection personnel and others have all set out what needs to be done so the next climate events are not as bad as the last. But they all require major resources and investments, well beyond what normal budgets provide for.  

Government budget constraints should not be the reason we fail to act.  We don't have to revisit needs every time disaster avoidance and preparedness fall short -- we don't have to rediscover winter every winter. We need to commit the funds and make the investments we know are required and increasingly urgent to avoid, minimize and deal with catastrophic climate change-related events. And we need to do that without draining resources from all of the other priorities our society must address. Dedicating carbon tax revenues to the mitigation and compensation of climate change-related events may not be enough in itself, but it can greatly help. It can get us going much more rapidly and effectively with what has to be done. 

We Need a New Level of Commitment and Approach to the Housing Crisis

We know from countless studies that there are severe costs of inadequate, unaffordable housing. Inadequate, unaffordable housing in urban centres limits access for low and medium wage workers.  People cannot work where they cannot afford to live. It significantly adversely affects the local community and economy. And, homelessness, in the extreme, imposes huge social and economic costs on all sectors of society:

-poverty, illness and premature loss of life for those directly affected;

-reduced property values for business and residents in or near outdoor encampment areas;

-disproportionate demand for emergency and other health services;

-extraordinary policing and criminal justice system costs;

-safety concerns for all residents, homeless and sheltered alike.

There have been increased efforts to address the homelessness and more general housing crisis in Vancouver and other British Columbia communities, but these efforts are manifestly insufficient. The problem has been getting worse, not better. There still is not the commitment to what is warranted and required -- a much greater, long term and strategic investment program than is currently taking place.

A fundamentally new level of commitment and approach is required.

First and foremost, investments to improve access to clean, safe and affordable housing cannot be dependent on the success or failure of ad hoc trilateral government negotiations and agreements. Secure, adequate funds must be dedicated to investment in housing and related supports and services to enable large-scale, long term plans to be developed and implemented.

Instead of the city looking to the province, and the province looking to the federal government for more funds for the different specific projects they would like to undertake each year or political cycle, we need the provincial government to create an Urban Housing Authority with a guarantee of funds sufficient to develop and implement long term investment plans that will make demonstrable improvements in:

-reducing and ultimately eliminating widespread homelessness and associated outdoor encampments;

-providing affordable rental or other housing opportunities for low and medium income workers and families in urban centres, reasonably near their places of work or study, housing that the private sector simply is not developing.

The mandate of this Urban Housing Authority would go well beyond the existing BC Housing Corporation with its limited scope and budget, and its complicated relationship with government. The Authority would be a major new developer of housing in BC urban centres, with private sector management and expertise, but very clearly articulated housing policy objectives and goals.

Core funding for the Authority would come from a housing development agreement with the provincial government. Much like BC Ferries which receives annual payments from government in exchange for  contractually-specified service guarantees, the Housing Authority would receive annual payments in exchange for housing development commitments -- commitments that would transparently put the province on a path to reducing homelessness and affordability concerns. The province could negotiate with the federal government and cities to share the cost of these payments, but the timeliness and success of those negotiations would not affect the province's commitment and contractual obligations to the Authority.

Over time, the Authority would develop other sources of revenues. It would be empowered to undertake land assembly and redevelopment schemes in core urban areas with profits used to finance development of more affordable housing units and related services. The Authority would also have borrowing powers through the Municipal Finance Authority or with provincial government guarantees to gain access to low cost capital funds. In this way the Urban Housing Authority would mirror the rationale and mandate of BC Hydro and BC Ferries -- established and empowered to make the investments and provide the facilities and services the private sector would not or could not do. And in doing so it would fundamentally change for the better the urban landscape of BC.

Lessons from Monty Hall

I wasn't the first to get the Monty Hall problem unequivocally and humiliatingly wrong. But I was as incredulous and arrogant as anyone else.

Monty Hall, you may recall, hosted a game show where contestants had to guess the location of prizes  behind a number of closed doors. In the classic Monty Hall problem there were three doors, two with nothing behind them and one with a grand prize. After the contestant chose one of the doors Monty Hall advised which of the other two did not have the prize. There were now only two doors where the prize could be located -- the one that the contestant had chosen and the one of the other two that Monty Hall did not rule out. Monty Hall then gave the contestant the opportunity to change her choice.

The question is: was there any difference in the probability that the prize was behind either one of these two remaining doors.

I, like many others, insisted there was no difference. The facts were clear. After the information Monty Hall had provided, ruling out one door,  there were only two doors where the prize could be located. The chance that the prize was behind either one of them was the same -- one in two.

That still makes perfect sense to me, except it is wrong. It ignores the fact that from the outset when the contestant picked one of the three doors there was a two in three chance she was wrong. To say the same thing there was a two in three chance that the prize was located behind one of the two doors she did not choose. And that didn't change when Monty Hall ruled out one of the two non-chosen doors. The only change was that there was now only one non-chosen door with the two in three chance of having the prize behind it.

So if the contestant stayed with her original choice she would have a one in three chance of winning. But if she changed her choice to the other door she would have a two in three or double the chance of winning.

I know this is a bit confusing and counter-intuitive. My son, or as my wife would say, the brighter and nicer economist in the family, had to construct simple simulations of the game to convince me I was wrong. Pure logic wasn't enough. But after a while it sunk in. And it was a great learning experience -- not so much the mathematical probability part but rather the more fundamental and humbling recognition of how wrong we can be despite the certainty with which we hold to the correctness of our position.

It is, I think, one of the most important lessons that helped shape my economic consulting career.  No matter how carefully we do our analysis and how thoughtfully we develop our conclusions and recommendations we must never forget we may be wrong. We miss or ignore important facts. We fail to recognize  the nature and significance of our assumptions. We sometimes just make mistakes.

I've always been skeptical of those who profess they have the one and only correct answer to difficult public policy issues. That is why I have taught and applied a multiple account approach to the evaluation of policy and project alternatives. Different values and interests can bring different perspectives and often the best we can do is to assess the consequences of different actions -- how things would be different going forward -- in order to define as clearly and meaningfully as possible the nature of the trade-offs different alternatives present. Add to that a real appreciation that we may be wrong in our assessments despite all of our best efforts and it calls for some caution and humility in the work we do.

One of the most unfortunate trends I've witnessed over my consulting career is the exact opposite of caution and humility. Especially in contentious policy and project debates, and the hearings and media frenzy that often go along with them, there is far too much of what I like to call "analysis with attitude". People have a position and shape their assumptions, analysis and conclusions accordingly. There is no room for nuance, recognition and assessment of trade-offs, or simple acknowledgement of all the reasons including typically pervasive uncertainty let alone mistakes, as to why they may be wrong.

After over 45 years I am closing my consulting business. If I can offer anything from my experience it is a plea to those who continue in the very important world of public policy analysis, debate and advice -- stay away from analysis with attitude and the vitriol and intolerance it too often foments. Try to inform and elevate the debate with careful, objective analysis and a fulsome recognition of uncertainty, different perspectives and interests, and the simple fact that despite our experience, knowledge and best intentions there are lots of Monty Hall problems and paradoxes out there. We make mistakes.

Rethinking the Carbon Tax in the Wake of Recent Severe Climate Events

If there was ever a time to reconsider the logic and purpose of the carbon tax, it is in the wake of the severe weather events that have caused so much damage in British Columbia this past week and last summer. 

The proponents of a 'revenue neutral' carbon tax, where the revenues are dedicated to the reduction of income or other taxes, see the carbon tax solely as a means of providing incentives to reduce fossil fuel use and associated GHG emissions. Encouraging households and business to reduce emissions is clearly critically important. And imposing a carbon tax, as virtually all economists will tell you, is an economically efficient way to do that. 

But carbon taxes would have to be an order of magnitude greater than current levels to meet the emission reduction targets that are needed to limit climate change to so-called manageable levels. And a revenue neutral carbon tax won't address the immediate challenge governments face as a result of the climate change we are already experiencing and which is likely to get more severe. 

There are huge expenditures that must be made to deal with the widespread damages caused by severe climate events like the flooding in recent days. And there are huge investments in public infrastructure and services that are required to enhance the preparedness and resilience of utility, transportation, municipal and other government services in order to mitigate the damages of future events.

Right now those expenditures will either come at the expense of other needed and almost universally underfunded health, education and other public services or be funded by increased income, sales or other taxes. That of course raises the obvious question: why shouldn't the costs of mitigating and addressing damages be paid for by the activity most directly responsible -- fuel use and the GHG emissions it causes.

The most obvious logic for and purpose of the carbon tax is to generate the revenues government needs  to pay for the costs climate change is already and will increasingly cause. We shouldn't be asking hospitals and schools to forego needed funds or workers and business to pay higher income taxes to pay for that. We should be expecting those most directly responsible to pay.

We need a carbon tax that is at least as high as required to cover the costs GHG emissions are causing. You don't need economic theory and price elasticity estimates to justify the tax. You just need the common sense requirement that costs must be paid for and those responsible should pay. You might even find a lot more understanding and support for the markedly growing level of tax that is required.

In the Wake of the Horrors of the Residential School System

There is, quite understandably, the demand for accountability and retribution in the wake of the gruesome discovery of unmarked graves in the vicinity of aboriginal residential schools. Even if there were some well-meaning educational objectives, there was a complete failure to provide even the most basic levels of protection, care and respect, resulting in tragic and lasting consequences for residential school students, their families and communities.

But without meaning to diminish the need for the most thorough and transparent accountability building on a 1996 Royal Commission and more recent Truth and Reconciliation Commission, and no doubt to be continued with the discovery of more graves and the release of more institutional documents, it would only compound the tragedy of the residential schools if we go no further than recrimination and demonization of historical leaders for what transpired in the past, and fail to consider what all parties must do in the future.

It is not good enough to recognize that the residential school system was a horrible mistake, The question is what must be done now so that aboriginal children and youth can get the culturally rich and modern education they deserve and need. Because too many are not getting that now and we know from census data and countless studies that without high quality education, employment and income opportunities will be greatly limited and social and wellness outcomes disproportionately poor.

We can rename schools and remove statues of political leaders that bear responsibility for the residential school system, and for some the symbolism of such measures is important. But we can't undo the past and can't gain much by divisive litigation of the intentions and responsibilities of people long since dead. Symbolic gestures won't provide meaningful improvements and opportunities for aboriginal children and youth today. That requires resources, personnel, and well-designed and implemented programs that meet the challenges of what underlies the educational and social outcomes we see today.

It will be up to aboriginal youth, families, communities and governments to determine the best ways of providing the educational opportunities they need. There have been great aboriginal leaders who have led in the education of aboriginal youth, with positive social and economic results. And there have been leaders who have worked on the overhaul of reserve school systems and support for off-reserve children and youth needed for meaningful improvements in educational and social outcomes. That work must be built upon by current aboriginal leadership to determine what is needed for their nations and communities. And those educational plans and programs must be priorities for provincial and federal governments to fund and fully support.

None of this will be easy. But in the wake of the horrors of the residential school system it is essential to move forward -- not just look back -- if the intergenerational cycle of poverty and despair that plagues far too many is to be meaningfully broken.

We know education can be delivered exceptionally poorly -- arguably criminally in the case of residential schools. The challenge is to focus as much as possible on how it can be delivered exceptionally well.

The Political Economy of John Maynard Keynes - Then and Now

John Maynard Keynes was the brilliant British economist who upended the laissez faire economic policy that prevailed in the early1930's -- the notion that the economy self-corrects and the best government can do is to get out of the way even during economic crises like the Great Depression. He developed the theoretical foundation for counter-cyclical economic policy --  the need for government spending and other measures to stimulate the demand for goods and services during downturns in order to restore business activity closer to full employment levels.  

But as Zachary Carter writes in his recent biography of Keynes and sweeping history of economic thought from pre-WWI to the financial crisis of 2008 (The Price of Peace: Money, Democracy and the Life of John Maynard Keynes), Keynes was much more than the 'fiscal therapist' he is set out to be in the sanitized version of Keynesianism taught in economic departments throughout North America and Europe. He was a  great philosopher of war and peace who challenged the very basis of limited government, free-market economies.

For Keynes, the crisis facing European and North American countries leading up to and during the Great Depression was not simply cyclical downturns and collapse of economic activity. That no doubt was a central concern, especially after the crash of 1929. But the larger issue for Keynes was the suffering in the general populations throughout Europe -- suffering exacerbated by wars, ill-conceived terms of the peace, the Depression of course -- but most fundamentally brought about because of a failure of free-market economies to foster the government support and investments needed to meet essential community and societal needs.  It wasn't just the economic instability and insecurity that concerned Keynes; it was the  political instability it gave rise to -- political instability manifested clearly in the rise of Bolshevik and Fascist extremism, leading directly to the unthinkable Second World War.

The irony of Keynes is that he developed what was then considered and some still think is a radical prescription -- aggressive government intervention to address the failure of free-market economies to provide the counter-cyclical and social investments a healthy society needs -- for quite conservative goals. He wanted to save liberal, western society from the oppression wrought by left and right wing populist extremism and the global chaos that inevitably follows.

Keynes' academic and political battles were fought in the period from World War I through to the end of World War II. The 'Keynesian' issues have mostly been resolved -- most economists and governments accept the need for government intervention to restore economic activity during recessions, albeit with conservatives and monetarists favouring tax cuts and low interest rates to stimulate demand and with liberals and progressives favouring government spending.  But the bigger issues raised by the political economy of Keynes are as relevant and contentious today as they were in Keyne's own time. 

The question remains -- can free-market economies, even with reasonable counter-cyclical fiscal and monetary policies, provide the support and investments needed to meet essential community and societal needs. And if that support and investment isn't there, can we expect a resurgence of left and right wing extremism with all the pain that can bring, as occurred in Europe between the two world wars.

John Kenneth Galbraith directly addressed this issue in his book, The Affluent Society. In his acerbic attack on the tax-cutting, limited government policies of  conservatives, Galbraith wrote: "what is the advantage in having a few more dollars to spend if the air is too dirty to breathe, the water too polluted to drink, the commuters are losing out in the struggle to get in and out of the cities, the streets are filthy, and the schools so bad that the young perhaps wisely stay away".  

The specific concerns Galbraith raised may not all be as relevant today, but the general issue certainly is. Do we or do we not need public sector investments to address the scandalous conditions of homelessness, poverty and substance abuse afflicting so many in our urban centres; to support workers and communities who bear the largest costs of the necessary transition away from fossil fuel industries; to make investments in high quality child care and education services for children of all backgrounds and family means; to support culture, art, public libraries and all of the social infrastructure that enrich our lives. The list could go on. 

One of the interesting themes in Carter's biography of Keynes is the notion that in modern times the central problem is not scarcity -- it is not the classic economic question of how we can utilize labour, capital and natural resources most efficiently to maximize what we produce. The question that Keynes raised and is still so important today is not 'how' but rather 'what' should we produce and 'for whom'. 

The Price of Peace: Money, Democracy and the Life of John Maynard Keynes is a long read, but well worth the trouble. It is great history both of Keynes and the leading economists who followed, and provides critically important background to understand the debates we are or at least should be having in the present, and the future we may be heading for if we repeat the mistakes of the past. 

Systemic Bias in Media Coverage of Covid

While there have been some very informative and balanced articles on Covid -- the exceptional pieces by Ed Yong, Zeynep Tufekci and James Hamblin in The Atlantic stand out in this regard -- for the most part coverage of the pandemic by the mainstream media has suffered from the same systemic biases that distort so much of MSM reporting. The business imperative of capturing readers' attention is better served by tweets and articles that inflame rather than inform the general public. 

In the case of Covid this systemic bias is particularly evident in the relentlessly negative daily coverage and commentary on cases and hospitalizations, public health measures, vaccine procurement and delivery, and life during and after Covid. It is a negativity that is not just inaccurate and unbalanced in many important respects, but is compounding the tragedy of the Covid pandemic with a mental health crisis of depression and despair, the costs of which may continue well after Covid is effectively gone.

There is, of course, valid reason for negativity in all things Covid. It has been a devastating disease taking and disrupting lives in so many ways. But context and balance is critical in understanding where we are and where we are going, something often lost in MSM reporting. 

Take, for example, the coverage of the third wave of Covid cases here in British Columbia. As the number of cases grew at alarming rates in the late winter and early spring, the media seized on the potential for unmitigated exponential growth especially with the variants taking hold in the province. On April 1, when new cases in B.C. had risen to almost 1000 per day, Global News featured modelling results suggesting that new cases could double every 10-12 days -- implying new cases could rise to well over 2000 per day by mid-month. Daily case rates didn't in fact double in the first half of April. By mid month, they were still in the vicinity of 1000 per day. Nevertheless, on April 16, Global News again reported the potential for  new cases doubling every two weeks, rising to over 2000 to 3000 per day by May -- which we now know hasn't happened and almost certainly won't.

The potential for exponential growth is clearly important to report. But so too is the fact that the exponential growth didn't take place. The circuit breaker measures implemented by public health, the public response and on-going vaccinations have clearly slowed and seemingly reversed the growth in cases. But the positive mitigation in the growth of cases didn't make the news. The media coverage stayed with the potential for exponential growth and failed to highlight and explore why that didn't occur.

The fundamentally different consequences of the third wave also escaped MSM attention. There has been an alarming increase in cases and hospitalizations in this third wave, exponential or not, putting pressure on hospital facilities and staff in major urban centres. But unlike the first two waves, there hasn't been anywhere near the same number of deaths. As shown in these graphs of Canada-wide cases and deaths, the pattern is dramatically different.

The number of cases in Canada now is as high or higher than it has been from the outset of the pandemic. The number of deaths, on the other hand, is less than one third what it was in the earlier waves . The consequences of the pandemic are still serious, but they are fundamentally different. With the vaccinations of the elderly and most vulnerable populations, the costs of Covid are arguably far less now than they were in the earlier waves. Pressure on hospitals can be addressed. Illness can be overcome. It was the high death rate in the early waves that was so catastrophic.

I'm not suggesting that the media shouldn't be reporting on the serious third wave of Covid infections. But at least in places like British Columbia that should be balanced by recognition of the success the targeted public health measures and vaccinations have had and hopefully will continue to have. And it should also recognize the near miracle of the vaccines that have been developed in such a short period of time and the  amount we have already been able to access despite the globally limited supply.

These are difficult times. But we are so fortunate in British Columbia for the careful and thoughtful way the crisis has been managed -- not perfectly for sure, but exceptionally well by comparison to our neighbours to the south, most countries in Europe, and virtually all of Latin America. Critics in the media and elsewhere can be negative for their business, political or other reasons, but to fight the depression and despair that negativity brings on we need to appreciate that things are not as bad as some would suggest and certainly not as bad as they could have been. Despite what we constantly hear and read, the outlook is unexpectedly good.