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Monthly Archives: April 2015

Maley Drive – Costs & Benefits

I had a chance to present my cost-benfit analysis of the Maley Drive Extension to the Chamber of Commerce’s committee on the subject. The committee seems split on the proposal – some members clearly being concerned about the costs and the limited benefits, others committed to the old view that any infrastructure spending is good for the local economy.

It was amusing to find that at least one member of the committee prefered to trust economic calculations by the engineers to what he called my “back of the envelope calculations.” I suppose that it is pretty hard to trust an academic economist even if he teaches cost benefit analysis. The joke is that the City engieers have not presented any cost-benefit analysis.

Going ahead with a major project without a cost-benefit analysis seems to me to be irresponsible behaviour on the part of any city council.

A few members of the committee seem to think that the Maley Drive extension would divert so much traffic from Lasalle that it would lead to more businesses starting or expanding along the busiest section of Lasalle. With no population growth projected for the city, new businesses would have to come from other parts of the city, so there would be no net gain. There could be losses. Many businesses want high-traffic locations. If that is true, diverting traffic from Lasalle could reduce land values there!

The Maley Drive extension has several serious strikes against it.maley-drive-extension

1) it is part of a much larger plan that will probably never be finished but will probably cost twice what the current section will cost.

2) Road projects in Ontario typically run 18-46% over cost so there is a lot of fical risk for the city.

3) All overruns will fall on city taxpayers.

4) By my calculations, the benefits to the people of Sudbury are much smaller than the total cost.

5) There is no evidence that there is sufficient demand for this road.

6) The City’s own traffic study said that the roads in the City are not near capacity.

6) We have not been maintaining the roads we have. With the additional debt we will not be able to catch up on the years of neglect to city Infrastructure.

7) There are other projects that would contribute much more to the city al lower costs.

It seems that Sudbury is like a poor family around Christmas time. The kids are asking for an expensive new toy. There is a tremendous temptation to spend too much on something they don’t need and won’t use. But the kids often get their way at Christmas time. Who knows what the Chamber’s committee will decide.

Some Thoughts on the Upcoming Federal Budget

With a federal budget coming out tomorrow it is tempting to say something about the comedy routine from the Finance Minister. This is a government that is about to announce a “balanced budget” for the very first time. For some reason it feels it needs to bring in legislation that requires every future government to balance every future budget. The psychology is very like the old puritans who were so totally obsessed with sex. They insisted on telling everyone else to stop having wicked thoughts.

Actually, I think this is really an attempt to create a poison pill for the next government. The Conservatives added $118 billion to the debt. They overspent what they have coming in this year, and even sold some of the furniture. They are trying to make sure the cupboard is bare for the government that takes over. Strategy teams for both the Liberals and the NDP know that, if they form a govenment, they will open the cupbobard and find nothing but more bills. Then they will have to go to the press and say, “Its a much bigger mess than we thought.”

And maybe Joe Oliver can put his nice new running shoes to real use – running away form the mess he has made.

Bill C-51: Our Enemies are the People Who Spread Fear

The demonstration against Bill C51 today was fun – genuinely enjoyable. Being out on a sunny day with very friendly peple is hard to beat. The speeches weren’t too long, the police escorts on the march around downtown was friendly. (The chants on the march were terrible) Congratulations to the Coucil of Canadians, Angelle Provencher, Blungey McGrues, and others for pulling it together.

I was asked to speak. The written version of the speech is below. It turns out speeches are like battle plans – they don’t survive the first contact with the enemy. There was no enemy, but when a friendly crowd cheers and chants, your carefull little talk takes on a life of its own. That never happens when I am teaching! Anyway, here is the speech:

I think we all know this is not good legislation. Experts tell us it is vague. Experts tell us it is badly written. Experts tell us it is UNNECESSARY! That isn’t really what we worry about..

We worry about how it might be misused. We worry about how it might be abused.

Conservatives who back the bill say, “WE would NEVER use this bill to suppress free speech.” That is what Mr Harper says, too. “We will ONLY use this bill to control the scary bad guys all around you.” We will only use this bill to keep track of your neighbours. And new Canadians. And dangerous protesters. And people scheming against our Canadian way. They tell you that you are in danger!! That they are the good guys. That they will always use this bill to protect YOU!

ARE YOU REASSURED?

Do you have confidence in these people? Do you believe Mr Harper when he says HE would never use this law to suppress free speech?

I happen to think the Supreme Court has already told us this government doesn’t know when it is crossing the line.This government doesnt know wht hte Canadian way is. Legislation from this government has been turned back by the Supreme court 10 time now.

Let’s ask another question. Do you have confidence in whoever comes next? Bill C51 isn’t the kind of tool you want to put into the hands of a paranoid power seeker. Maybe the guy who comes next will use it to stop demonstrations. Maybe a new police commissioner will use it. Maybe a new provincial law will open the door to more misuse.

Every generation faces its own challenges. Past generations of Canadians went to war for the country and they have gone on peacekeeping missions. They have struggled over slavery and fascism, and the oppression of women.

Our struggle today is preserving the Canadian freedoms and Canadian civility they won. Our enemies are the people who spread fear. Who ask for laws against protesters.

Bill C51 is just a small step toward a less free Canada. A more fearful Canada. It is a mistake. Mr Harper wants Parliament to put the whole vague, badly written, unnecessary pile of paper into Law. We want Parliament to put it in the trash bin.

Ontario Stumbles Toward Carbon Pricing

Ontario’s Provincial Government is trumpeting a Great Leap Forward as it announces its Cap and Trade system. There is no doubt at all that it is, as Premier Wynne says, a lot better than nothing. It is a lunge – a clumsy lunge – but a lunge in the right direction.

This is the season when university profs like me are marking exams. We are not very nice people at this time of year. We are hyper-critical and grumpy because so many students have disappointed us. Family members feel everything they do gets a grade. Politicians can dissapoint us too, and we can’t help thinking what grade they should get11136688_364102390466519_7996711462947670624_n.

I’d give the Ontario Cap and Trade scheme a C+ for economics, a C- for politcs and a D for being late and unfinished. Glen Murray and Kathleen Wynne have passed the test on carbon pricing, but their group project isn’t very impressive.

The economic analysis is very conventional and a bit out of date. They basically pulled their plan off the web, copying California and Quebec. That’s pretty safe, but they obviously relied more on media reports than recent economic research. They bought the line that Cap and Trade controls quantities well, even though there is not much evidence that it really does. They ignored the fact that recent research shows that the cost of running the system are very high. Money will go to running the market that could have gone to consumers or the government. They repeat the propaganda about Cap and Trade being a real market solution, when it is a hybrid of a regulatory system and an artificial market. The approach that they adopted increases inequality and will make the poor worse off. C+ at best for their economics.

Their politics are a bit worse than their economics. The main advantage of a Cap and Trade System is that it is supposed to hide the fact that the government is increasing the cost of carbon. Nowadays everyone knows that a Cap and Trade is equivalent to an erratic carbon tax, so they are already getting hammered by conservatives for introducing a stealth carbon tax. That is a pretty significant political mistake.

Their plan will leave them poitcally exposed for a long time. They are hoping that economists and progressives will just hold their noses and their criticisms. After all, the scheme is better than nothing, isn’t it? Unfortunately they now have to deal with each industial organization one by one. They will get bullied into concessions that seriously undermine the pricing system. They will get criticized for making concssions even while they are getting crucified in the press for not making enough concessions.

They will take a long time to get it working, too – probably a lot longer than they expect – and they will get hammered by the left and the right while they dither. They won’t get much revenue and at least half of the public will be unhappy about the way the goverment spends their carbon tax money. I think C- is a pretty generous mark for the political strategy.

It is a Pass, though. The government and Glen Murray have not proven to be brilliant students, but they are going to scrape through.

What I regret most is that they have probably set the standard for the rest of Canada. It is now much harder for anuy other province to adopt the more efficent Fee and Dividend scheme. I’m sure that Glen Murray thinks he has been politically astute, but in fact he has shown timidity and a lack of vision. Ontario is following where it should be leading.

Low Oil Prices a Sign of the End of the Age of Fossil Fuels

We hear a lot of talk about oil prices and oil oversupply. A lot of people, including the Alberta Premier and Prime Minister Harper seem to be waiting for the “correction.” They apply the old saying, “What goes up must come down,” and conclude that “What goes down must come up.” Even at the metaphorical level this is a shaky conclusion.

But what if they are just wrong? Most analysts think the Saudis are just competing for market share, assuming that total sales will stay high. What if the Saudi believe that they are not going to be able to sell all the oil they have? What if they believe that climate change is so serious that we will see rising carbon taxes across the world and a fairly rapid move to electrification of transport? In that case prices are not coming up again until people stop worrying about climate change.

There is a lot of evidence that some important players think oil is doomed. Oil prices dropped over 11% this q11013395_362956063914485_8696054563935010700_nuarter. Guess what energy commmodity rose by over 11%? The performance of uranium suggests to me that some players in the energy game are shifting horses. Despite the horror many express about nuclear power, it is true that it is almost carbon-free and that nuclear power kills far fewer people every year than mayonaise. I personally think there is a renaissance on the way for nuclear power. Anti-nuke activists will make sure that the technology isn’t developed here, but they really can’t stop the application in countries like China that desperately need safe, high-density, carbon-free power. The evidence seems to show that the Chineses have made up their minds on this issue. The current price move suggests to me that it isn’t just the Chinese that have made up their minds.

Economc decisions in other industries also suggest we could be approaching the end of oil. We know the automakers are working hard to get electric cars to market despite the fact that gasoline engines are more and more efficient. At the very least they have hedged their bets. I think they really belive that the age of fossil fuels is ending. The technology of electric vehicles – motors, lightweight bodies, batteries, electronic controls – is moving at a blinding pace. As with solar power, the economic tide is turning in favour of the electric vehicle.

It might not be smart to bet on an oil-price “correction.” In fact, the low price of oil may be the correction.

Fight the Right Battle

I know there are still a few stalwarts still denying climate change or human caused climate change. I wish they would stop fighting the battle that they have already lost and try to make sure that the carbon pricing system they are going to get is a good one.

The most significant policy issue for Ontario right now is about pricing carbon – will the Liberals bring in a costly and inefficient cap and trade system or will they introduce a carbon fee that is cheap, effective and keeps money in Ontario? They have not announced their decision, although pretty much everyone thinks they have made up their minds.

Economists are still being polite about the cap and trade schemes, but the tide has swung against that approach in the profession. Besides historic failures, serious corruption problems, and poor coverage, the big knock is that with cap and trade someone has to pay a whole posse of lawyers, speculators, bureaucrats, inspectors and verification experts. Every single unnecessary dollar they get is paid for by consumers. Cap and trade is wasteful and bad for Ontario.

A carbon fee would collect less from consumers for the same impact. It would give less to the speculators and put more revenue into government coffers. We can argue about what to do with it then. ( I say give it back to people). Lets not give it to the huge and costly managers of a cap and trade scheme.

So here is the message for climate change deniers: why waste time fighting a losing battle when your pocketbook is on the line?

Cap & Trade may be Clever, But it’s Not Smart

It is a bit depressing to know the Liberals are about to bring in a cap and trade system. And it is really annoying to know they think they are being clever when they do it.

Economists are still being polite about the cap and trade schemes. The general view is that it is a lot better than nothing. That doesn’t make it a good choice, though. In the profession the tide has swung against the cap and trade approach.

If you read the recent report by the Ecofical Commission you will see that they simply don’t come down on one side or another. They do say that a major advantage of letting provinces develop their own schemes is that it keeps the revenues in the province. If revenue is important, then cap and trade is a bad choice.

Besides historic failures, serious corruption problems, and poor coverage, the big knock is that with cap and trade someone has to pay a whole posse of lawyers, speculators, bureaucrats, inspectors and verification experts. Every single unnecessary dollar they get comes from consumers. Cap and trade is wastefull because you get the same effect with a carbon fee and you don’t have to pay a lot of middlemen to do a worse job than a carbon fee would do.

A carbon fee would collect less from consumers for the same impact on carbon emissions. It would give less to the speculators and put more revenue into government coffers. We can argue about what to do with the reveues then. ( I say give it back to people). Whatever we do, let’s not give it to the overpaid managers of a cap and trade scheme.

I know there are still a few stalwarts still denying climate change or human caused climate change. They are wasting their breath. The world is moving on. They should stop fighting the battle that they have already lost and try to make sure that the carbon pricing system they are going to get is a good one. The smartest thing for climate change deniers at this point is to support Fee and Dividend system.

So here is the message for climate change deniers: why waste time fighting a losing batttle when your pocketbook is on the line?