November 2010

Buffett Tells ABC Rich Americans Should Be Paying "A Lot More in Taxes"

Billionaire Warren Buffett has come out and said the equivalent of 2+2=4. Or =666, if you're a neo-liberal hell bent on even more tax cuts.

In a recent interview, Buffett said, “I think that people at the high end -- people like myself -- should be paying a lot more in taxes. We have it better than we’ve ever had it.” In opposition to the trickle-down economics which has pervaded American thinking for decades (and particularly the massive George Bush tax-cut agenda), Buffett responded, "The rich are always going to say that, you know, just give us more money and we’ll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on.”

Of course, don't feel too badly for the wealthy. Even the Obama administration is promoting a "compromise". The upcoming tax cuts promised by the Bush Administration will still go through, up to the first $250,000. This means that the poor, working class and middle class will not be able to take full advantage of the proposed tax cut. You guessed it: only the upper middle class and wealthy can fully utilize the benefits.

Goin' out in style!

If the boss is forcing you out, then you might as well go out in a blaze of glory!

Here is Bill Bennett's quite remarkable exit interview after being removed from the cabinet of the BC Liberal government:

Bill Bennett faces the media (mp3)

An analysis of the US economy by Robert Reich

I would encourage you to download this speech by Robert Reich. [Right-click on the link and choose "Save Link As" or "Save Target as".] It's a cogent Keynesian analysis of America's current economic situation, except that it's also a near-perfect Marxian analysis, too, aside from the Keynesian interventionist strategies. Reich's key argument is that inequality is bad for business, and unless America can address this fundamental challenge, all of the secondary problems will be insoluble. The irony is that, in the end, Reich copies much of David Harvey's Marxist analysis of the fundamental contradictions of capital accumulation. The only real difference is that Reich wants to save capitalism, while Harvey has no such allegiance.

One interesting contribution by Reich is his discussion of the "three coping mechanisms" that the average American household has been using over the past 30 years to compensate for the effective decline in wages:

1. moving women into the workforce
2. making men work more overtime (a great source of "improved" US productivity)
3. borrowing money against home equity

Reich asserts that these mechanisms have, up to now, allowed Americans to ignore the problems of inequality. However, these mechanisms are now spent, and it's time American politicians own up to the fundamental problem: the engine of the American economy - the average consumer - is no longer capable of spending the money that makes economic growth possible.

The Neo-Liberal Agenda: The Effects in BC, Part 2

In my last entry, I wrote about the pernicious attempts by the BC Liberals (and other neo-liberals) to promote tax cuts on the basis of improvements in productivity. I explained that these productivity increases simply haven't happened. This, in turn, suggests that Campbell's tax cut agenda is bogus and self-serving

The question, then, is what has come of the tax cuts that Campbell's government initiated almost immediately after coming to power in 2001?

The best answer is the same answer that we see in the United States: a concentration of wealth and income that leads to inequality.

The following is a chart from the federal government. The richest quintile in BC made, on average, 10.1 times the average income of the poorest quintile. The rest explains itself.

At this point, a left-wing analysis of our economy really starts to make sense.

The Neo-Liberal Agenda: The Effects in BC, Part 1

I've talked at length about the failure of the neo-liberal agenda to increase productivity and high-quality employment, particularly in the Canadian context. But do these lack of economic benefits pertain to BC?

The Fraser Institute certainly doesn't think so. In a recent editorial puff piece in the Vancouver Sun - surprise, surprise - two writers from the F.I. extol the virtues of the BC Liberal government:

... Shortly after coming to power in June 2001, Campbell implemented major tax cuts on both personal and corporate income and scheduled additional cuts thereafter. Specifically, in his first budget (2001), Premier Campbell enacted a 25-per-cent across-the-board reduction in personal income tax rates, followed by more cuts in 2007 and 2008. The result was a significant improvement in incentives for British Columbians to work, save, invest, and be entrepreneurial.

His 2001 budget also reduced the general corporate income tax rate to 13.5 per cent from 16.5 per cent (effective in 2002); later reductions dropped the rate further to 10.5 per cent in 2010. Thanks to these and other business tax cuts (i. e. elimination of the corporate capital tax) B.C. now has a more competitive business tax regime.

Controlling government spending has also allowed Campbell to better manage government debt. From 2001-02 to 2009-10, Campbell's government generally balanced the books and on average recorded a small surplus (0.13 per cent of GDP). Over the same period, it reduced B.C.'s net debt to 15.7 per cent of GDP in 2009-10 from 18.5 per cent of GDP in 2001-02....

I won't go into the massive capital infrastructure costs that are not part of the Fraser Institute's accounting of our provincial debt. The real point is the drivel about "a more competitive business tax regime". In a truly competitive economy, profits and tax savings are supposed to be reinvested to make a business more efficient and more cost-effective. That's how you succeed in a competitive environment. But the problem with the Fraser Institute argument is - surprise, surprise - it's not happening.

In their recent "2010 BC Check-Up", the Institute of Chartered Accountants of British Columbia - no friends of progressive policy - offer very different conclusions about BC's "Golden Decade". To be sure, they do agree that productivity is important:

Improving productivity should be the cornerstone of any provincial economic action plan, as productive and efficient businesses have additional capital to reinvest in both their workforce and new machinery and equipment. A productive economy allows BC’s businesses to better compete internationally and will drive the province’s long-term economic health.

Unfortunately, BC isn't doing particularly well in terms of productivity:

Despite the infusion of investment and human capital in the past five years, BC’s labour force productivity stagnated. All of Canada suffers from a labour productivity gap with the US, but BC’s productivity has remained below the national average for many years. To a large degree, poor productivity explains the lower real wage in BC, as a less productive workforce affects profit margins and decreases the amount of capital that can be reinvested. This deterrent to investment, over the long-term, could erode BC’s ability to compete against the US. One of the more notable results in this year’s BC Check-Up was BC’s productivity gain of 2.1%, the best result in our comparison. However, to some extent, this gain was the result of rationalization in the forest industry, which means that BC’s turnaround in this critical indicator was linked to the loss of many jobs in a vulnerable sector, rather than increased investment in machinery and equipment and human capital.

Labour productivity rests not only on capital investment, but also the quality of the labour force itself. BC’s labour force educational attainment is still lower (63.1%) when compared to Alberta, Ontario, and Canada as a whole (64.3%, 68%, and 66.4% respectively); it also grew slowly during the past five years (3.8% compared to the national average growth rate of 4.7%). And employment in the sciences declined in 2009, by 0.6 ppt, as layoffs occurred across many sectors where these skills are needed.

This lack of productivity helps explain why BC has the highest child poverty rate in the country, and some of the worst real wages of any province. Indeed, the effects are quite staggering:

In 2009, BC’s real hourly wage was $23.89, compared to $27.24 in Alberta, and $24.48 in Ontario. Labour compensation per worker was even more skewed, at $44,568 in BC, compared to $64,516 in Alberta and $48,612 across Canada. Finally, the female/male wage ratio in BC is lower than it was five years ago (from 0.87 in 2004 to 0.84 in 2009), in stark contrast to all other comparison jurisdictions, where it has generally risen.

The only question remaining is this: After a decade of massive tax cuts for businesses, what have they done with all that money?

The Neo-Liberal Agenda in BC: Reduce, Just Don't Shift

Aside from shifting taxation from the business sector to the middle class (like in the HST), the neo-liberal agenda seeks to reduce the overall size of government, particularly in relation to GDP. A classic example of this reduction in government can be found right here in BC. Below is a chart from the BC government's 2010 budget document called the "2010 Financial and Economic Review". [Please double-click on the chart to see the full scale view. The yellow highlighting indicates the NDP years in between the Socreds and the Liberals.]

We can see that, in the second-to-last column, spending has gone down significantly - relative to our overall capacity to pay. The poor economy and the Olympics have changed that recently, but the overall policy trend of the BC Liberals is clear. It may not seem significant, but each percentage point of GDP translates into hundreds of millions of dollars, dollars which disproportionally affect the population in the bottom half of the income scale because a much greater percentage of its income relies on government transfers and services.

This kind of economic analysis also explains why the government can claim it is spending more on services like education and health - in absolute terms and relative to previous years - but it also shows why the growth of our economy has exceeded our government's provision of services. And it further explains why claims that health care care spending is "out of control" is a myth. Spending is going up, for sure, but it's not out of control - except when tax cuts dramatically reduce a government's revenue and, relative to that, health takes a much bigger proportion. But, if that's the case, the story should not be health care, but our government's determination to return us to the 19th century, and to take us back to a social Darwinist, I'm-all-right-Jack society.

The Georgia Straight on Post-Secondary Spending in the Valley

The Georgia Straight, and its online version, the straight.com, are useful sources for news, investigative journalism and media criticism. Amid its pop culture pap and racy personal ads, the Straight can deliver articles of surprising quality on topics rarely seen in BC's corporate media.

Here's a recent article on the imbalance of spending on post-secondary institutions on the south side of the Fraser River compared to the north. It's amazing what a little bit of research and empirical analysis can do:

http://www.straight.com/article-354726/vancouver/region-faces-education-gap