Here is my latest piece for the Globe and Mail, It talks about the way that inequality is going to follow this generation of workers into their senior years.
Here is my latest piece for the Globe and Mail, It talks about the way that inequality is going to follow this generation of workers into their senior years.
I’m happy to have been able to contribute to Macleans’ list of ’75 Charts Every Canadian Should Watch in 2017′. My post was on the ‘Gig Economy’ and you can find it here (you have to scroll down to find it, but that gives you a chance to see some fascinating graphs first) but as I mention, wish the information we had on it was better. Are you listening Statistics Canada?
Really, it seemed like the universal basic income (UBI), was going to be the hot new thing in economic policy. It sounds like such a simple solution to economic woes, so uncomplicated, just so basic really. Give every citizen in a country some form of stipend so that at the very least everyone has enough to live on, goes the argument, and the issue of poverty would be solved. Why then, if it such an elegant solution to a bunch of thorny problems, have the Swiss so overwhelmingly rejected a plan to implement the UBI, and why it the backlash against it growing
But voted against it they have. On June 5th, 77 percent of Swiss voters said no way to a proposal to give every adult Swiss resident about $30,000 Swiss francs a year (a little over $30,000 U.S.), and every child about a quarter of that. Although the proposal (which was not put forth by a mainstream political party) did stipulate that the adoption of a UBI would go hand in hand with the elimination of all country’s welfare programs, it did not provide a lot of details on how much it would end up costing and whether would need to be raised to pay for the whole thing. Not surprisingly, the voters were wary and voted ‘no’.
The Swiss might have opted out of the UBI, but it is something we are going to be debating more and more in future. It is an idea that has its supporters from the political left (primarily because they think it might be a judgment-free way to pay people enough to end poverty) and even more from the political right (who believe that it is a way to lessen the size of government and treat everyone the same). Ultimately, however, the real support for a UBI may come from a wide swathe of people who are concerned by what technology may do to employment, or rather to unemployment.
We are at an exciting and scary time in terms of the global economy. Technology, which has more or less been our friend up to now, is now at a place where it threatens to out and out replace jobs, leaving a large portion of the population unemployed or underemployed. It is not a change we have seen before. When cars replaced the horse and buggy, buggy whip makers were able to find work in car plants. This time round, however, the elimination of jobs as a result of automation and robotics may well take a much broader toll, encompassing more and more jobs at all skill levels. A recent report by the Bank of England said as much, suggesting that as many as 15 million British jobs (close to half of current total employment) may disappear as a result of automation. If you believe that, and if you believe that it is a trend that might be replicated in other countries, then it is clear that a sea change is afoot. Looking ahead to ten or twenty years from now, perhaps we will not have a fully employed populace and the ‘sharing economy’ may indeed mean sharing the jobs. In that case, maybe it does make sense to move to a Universal Basic Income and have governments sort out the payment details.
The problem is, most of the details regarding a UBI are not well fleshed out anywhere. Paying a basic income to everyone in a country would come at a whopping bill that would have to be paid for somehow. Most likely that would come from taxes on those who were also working, which would erase any benefit that they got and act as a disincentive for many to work (opponents to the UBI in Switzerland made that case, suggesting it would lead to a flat out shortage of workers). I suppose another way of paying for the UBI would just be to print money to pay everyone although that would be an out and out disaster in terms of inflation.
In theory a UBI might work if it came in exchange for you every single other welfare program or government expenditure, but that also seems crazy. Close the libraries and let everyone buy their own books? Okay, maybe. What about erase every kind of disability payment and figure the basic income covers it? Or get rid of drug benefits or food stamps and assume that everyone will make the right choices when it comes to meeting their kids’ needs? Maybe not . And all of that is aside from the question of how to keep those that thinks a UBI sounds cool from heading to the region that provides it. If one U.S. state offered it, they would probably have a flood of people from other states moving in. If it was a whole country providing the UBI immigration rules might make it difficult for everyone who wanted to enter to do so, but it would provide a policy challenge just the same.
At the moment Finland, the Netherlands and Canada are planning tests of the UBI (in the case of the latter, the province of Ontario will be pilot testing a UBI in an unnamed region this fall) and the idea is gaining traction in Britain as well. The UBI may not ultimately be the magic solution to what is turning out to be a sea change in the economy, but if it is not it is certainly time to discuss some alternatives.
Way back when I studied economics, I don’t actually remember learning what a ‘negative interest rate’ was. In fact, even a few years ago when I taught graduate-level economics (a whole other post), I don’t remember it being in the curriculum, or even being asked about the topic. That was then, however. These days, negative interest rates are a thing, and for those of us who never bothered to think about them too much, now is the time.
Luckily for those who need a crash course in negative rates, the Federal Reserve Bank of San Francisco has put together this neat and concise primer on the topic. Their focus is on the the Bank of Japan (BOJ) which last month surprised the markets by implementing a negative rate policy, but their explanations work for any country.
In the case of Japan, and in the case of any country worried about deflation, low rates are the way to go and negative rates are the last-ditch extension of that. Think about it: if people are not spending money, then prices get bid down and down again in a never-ending cycle. If you want them to spend money, you need to make sure that they do not have the incentive to save it, which means doing away with high interest rates. And yes, negative rates are the extreme opposite of high rates.
Actually, in the case of Japan the negative rates are more about changing the behavior of banks, rather than individuals. The Bank of Japan wants the banks to lend, so rather than give them any interest on money deposited with the Bank of Japan, they are (subject to some specific conditions) actually charging them for leaving money parked. So far, it seems to be working: Japan’s largest banks have now announced that they will cut the rates they charge on mortgages.
As the San Francisco Fed points out, moving to negative rates can hurt bank profits, which is something to consider. That is, banks typically have a ‘spread’ between what they pay on deposits and what they earn on loans. If they have to factor in what they have to pay on their own deposits – well, that’s not exactly a positive. They could of course try to pass those ‘costs’ on to their own customers, charging them a fee for depositing with them, but it’s hard to see how to make that stick. Customers would quickly find something else to do with their money, even if it means putting it in a box under their beds.
Japan is not the only country experimenting with low interest rates. Sweden, Denmark and Switzerland have also moved into below-zero rates, and at a press conference in December Bank of Canada Governor Stephen Poloz hinted that it was a tool he would consider as well. Not surprisingly, even the hint of doing that sent the Canadian dollar into a tailspin. Officials from the U.S. Federal Reserve and the Bank of England have toyed with the idea publicly as well.
In itself, using negative rates may not make much difference to individual economies, but the fact that they are now on the table as a tool is significant in itself. Here we are a good six or seven years past global recession, and deflation is still a major concern in many parts of the world. It is a strange economic time to be sure, which is why economic textbooks might well need to be re-written.
Hey I’m a politician – again! I’ve declared to be a candidate for Town Council in my home town for a by election coming up in a few weeks. It’s my second try at this, given that I unsuccessfully made a bid for a seat in the last municipal election (see my experiences in that here). I’m in this for all the right reasons, but apparently the idea of that makes people suspicious right away.
‘Why do you want to do this?’ is the constant refrain I hear. ‘Don’t you have bigger fish to fry, so to speak?’ asks one friend. ’It is a lot of work for not a lot of rewards’. ‘You should maybe think about higher levels of politics’ says another. After all you have a national reputation and a pretty impressive resume’. Well, thanks but I actually do believe in the idea of public service and being part of my own little community. I also believe (and I’ve written about) the nascent power of towns and cities. Town Council is where I want to be, and its not because I’ve failed at a different level of politics or because I’m using it as a stepping-stone to get to one.
Then there is that resume, which y’know I’m kind of proud of. I’m an economist, an author and a broadcaster. I spent more than a decade on television explaining the economy in non-scary ways to people (I was the on-air economist for Canada’s business channel). I’m the Senior Fellow at a think tank (my specialty is demographics and trends). I’m a keynote speaker in front of thousands of people. I’ve been a professor at Canada’s top business school. I’ve written three books on economic-type topics. I hold a Queen’s Diamond Jubilee Award for public service. Pretty impressive, huh? Well, not to everyone.
“I’m not sure about all that stuff on your web page” commented a friend with a background in marketing. “It makes you seem too smart. Maybe you should dumb it down a little”. Riight. Because that’s what people should want, dumber politicians. Got it (actually, he might be on to something there).
Of course, it is important to have a snappy message, something people can remember. My main two opponents in this race so far are both chiropractors, so my first thought was ‘Your non-chiropractic choice’. Okay, not perfect. Then again, I do know my message. I’m all about economic issues (get it, I’m an economist?) and to me that means government staying out of the way as much as possible, and out of people’s pockets. I abhor taxes, and think politicians ought to spend tax money as if it was their own. So I settle for ‘Protecting Your Tax Dollars’ and hope the message gets through.
And I really do hope my message gets through. It’s hard. The mechanics of running a campaign are still pretty new to me, and despite some awesome support it is all a lot of work. Reaching people when you do not have a lot of media channels available to you is difficult. And keeping your name out there when your opponents are clearly ready to out-spend you is a challenge too.
Then again, I like a challenge. I’d like some help too, so if any of you want to share your experience of working on a campaign, I’d love to hear it. (I’ll take financial support too, just saying). And when I want to fall into a trap of self-pity at how hard this is, I remember why I want to do it. I guess I should be quoting a great philosopher or thinker here, but the motivating quote that keeps going through my head is from the actor Will Smith. Talking about why he has succeeded, here is what he has said :
“I will not be out-worked, period. You might have more talent than me, you might be smarter than me, you might be sexier than me, you might be all of those things you got it on me in nine categories. But… You’re not going to out-work me”.
Work, my secret weapon. I’m going to have to put in a lot of that to win this campaign, but that’s fine.
How would you like free college tuition for you and for your kids? It would really take the pressure off, right? Of course you’d take it if offered – but what if there was a catch, the catch being really high taxes forever? That’s the deal that Denmark – and a lot of Europe for that matter – has struck and it is working for them, at least more or less. Whether it would fly in North America is another story.
A blog from today’s Washington Post summarizes the situation nicely. In Denmark, tuition is ‘free’ (more on that in a minute) to everyone, and everyone gets an allowance from the government if they are in school. You can get this generous deal for up to six years, and even if you do drop out you owe nothing. Sweet.
Thing is, even those who have forgotten most of what they learned in Econ100 (and as a former professor of Econ100 I can hardly blame them) tend to remember one fact: there is no such thing as a free lunch. If you are eating, someone must be paying. And of course someone is paying in Denmark, and that’s the taxpayer. That’s fine in Denmark, which has one of the highest tax rates in the world and where there is a tacit buy-in to the fact that higher education for anyone who wants it is good for the economy as whole. But is it?
Again staying with the econo-reasoning, there is an argument to be made that if something is free, you consume more of it than you would if there was a price to it. In other words, a lot of people may be getting a college education when they might be better off doing something else. Even if you do not believe there is any harm in that in itself, the zero cost of education does make people less aware of choosing majors that will pay them well when they graduate. As the Washington Post notes, a frequent criticism of the Danish system is that it does not produce enough science and technology graduates, the argument being that if everyone had debts to pay back, they would think harder about studying things that would get them jobs.
Nor is it true that free education has wiped out the youth unemployment problem. As is true in pretty much every country in the world right now, youth unemployment is indeed an issue in Denmark, and at 11 percent the rate sounds pretty high. It sounds better though, when you compare it to the overall youth unemployment rate in Europe, which is stuck about 20 percent, or the rate in Canada and the U.S. which has hovered around 12 to 13 percent for the past couple of years. So Denmark is still wasting talent, but perhaps it is wasting a little less than other countries. As well, by almost any scorecard, Denmark also does better in terms of income inequality, which as we have been seeing lately is a pretty corrosive economic force.
So should we all go for higher taxes and take some pressure off our students? I’m still voting no on that one, but I do think the experience of Denmark is one to consider. If you just take the example of Canada, some estimates suggest that over the past couple of decades the cost of tuition and fees has actually tripled. Even assuming that that is an exaggeration, the cost of going to college in North America is prohibitive to some, and casts a long financial shadow over the lives of many who do manage to achieve it. That’s not without costs to the larger economy – proving again that whichever choice you go with, lunch is really never free.
Do you go to the mall? I used to, quite a bit actually. In the 70s, 80s, 90s, even the 00s – the mall was the place to buy stuff, and I liked stuff as much as any child and young woman in North America. Now, you can buy stuff in lots of other places – like big box stores, or on the internet – so the mall is less of a destination for me, and for many other shoppers too. That raises some big questions, for mall operators and retailers obviously, but for communities as well.
This piece from The Smithsonian summarizes the history of malls nicely. I had not realized that in their early days, U.S. malls were built as much because they offered tax advantages to developers as anything else. Having said that, they were pretty dazzling to many suburban shoppers. Everything, all in one place, with a food court to nourish you when you needed a break. Heaven.
Then again, that was when the world was defined by the retailers you could visit. If you needed a prom dress, you checked out the twenty or however many stores you had at the mall, and made your choice. Now, not only can you buy from the site of every online retailer, whether or not they set up shop near you, you have other options as well. Ebay brings the world to your door, and Craigslist and Kijji make the secondary market easily accessible as well. The mall is not the only game in town.
Of course, the explosion of choice is not the only factor that is hurting malls. An aging population (which is who we are in North America) needs less of the stuff I used to like, so mall trips suffer accordingly. And even the young are being more parsimonious these days when it comes to typical mall merchandise. Yes, the Apple store cannot keep the latest iPhone in stock, but that appetite for electronics has been to the detriment of typical mall clothing purveyors like Abercrombie and American Eagle Outfitters. In many communities, developers have been slow to upgrade older malls too, which makes them even less enticing.
According to the Smithsonian article, there is speculation that half of the malls in the U.S. could close over the next 15 to 20 years, and it seems reasonable to assume that Canada could see a similar decline as well. Although the fall of the mall is not likely to strike the same heartstrings that go along with hollowed out small town downtowns, it is worth a thought as to what goes along with a mall closing.
At their best, malls can be destinations, gathering places, homes away from home (much as many people think of their local Starbucks). That might mean reinvesting in them and changing the mix of stores, or it might mean using them for more than retail. As the Smithsonian piece says, some mall success stories center around using space for libraries or offices or skating rinks. Given the demographics, I would suggest adding ‘Seniors Centres’ to the list, and then exploring the possibilities.
Hey – I just lost an election! It was not exactly a surprise – I was going up against a 10-year incumbent and I only put a couple of months and a relatively small amount of money into the battle – but it is disappointing just the same. Still, I am glad I gave it a shot.
I ran to be on Town Council in my medium sized town outside of Toronto, and I learned a ton in the process. One thing I did not realize is that no matter how strong your qualifications and how weak theirs, it is close to impossible to dislodge an incumbent politician.
One statistic I read is that in the U.S., 95 percent of the time, incumbents are elected, even when there is a supposed ‘anti-incumbent’ vibe in the air. People just go with familiarity, and when someone has had a decade or so to back-slap at barbecues, they are familiar. You might have a shot if there is an actual issue at stake or real anger over something, but otherwise your chances are slim. In my case, I live in a cozy, affluent suburb where the biggest issue is that the planes flying overhead are too noisy (I kid you not – that is what people want politicians to fix). It was a pretty uphill battle for me or the other challengers (there were four of us) to convince people that anything needed to change.
Second, I learned that campaigning is expensive.
Okay, I knew that campaigning is expensive, or at least I could have guessed it since candidates are forever asking for money. But the bills really do mount up. From signs (which can easily run into thousands of dollars) to the sweets you hand out when you visit retirement homes, it is not difficult to spend more than you bargained for. And note to future candidates: do not forget the treats when you go to the retirement homes. I inadvertently did not bring something to one (it was the first one I visited and was not sure it would be allowed) and heard the receptionist lamenting to someone that I had shown up without Timbits when she had nothing to eat with her coffee. I’m sure she ran a smear campaign against me thereafter.
I also learned about door to door canvassing (I met some nice people, and was constantly assured that their dogs were ‘friendly, really’), about how to put signs into the ground, about where to get election postcards printed. There are things I would do differently for sure, but again I am not sure it would have made a lot of difference. A friend who has worked on many campaigns warned me beforehand that I was probably going to end up second, which is exactly what happened. “If people get as far as checking out websites, you’ll win” she said, “But most are not going to do that”. Local campaigns just do not work that way unfortunately.
I may not have won, but running was not a wasted experience. I made some great contacts in my community, as well as some new friends. Most important, it was great to involve my tween daughter in the election process. She went to events, helped with the drudge work, and gave lavish advice on strategy. In the process, she learned a ton about government, got a nice resume item, and now takes it for granted that she can run for any office she wants (she is leaning towards Prime Minister).
I now return to my regularly scheduled life, which does afford me more of a chance to comment on the global issues that interest me. Still, I liked my foray into politics and into local issues more than I thought I would, so who knows what the future will bring.
I love this: the newest trend in travelling is ‘Literary Tourism’, or making a pilgrimage to the birthplaces of your favorite authors or the sites of their books. As this article from the Atlantic details, it is certainly a gentler way to vacation than doing a bike tour or even schlepping from tourist attraction to attraction. Those who do it probably come away feeling like they are pretty smart too – which is a nice incentive as well.
Literary tourism of a sort has of course existed for a long time. People take a look at the birthplace of Charles Dickens when in Portsmouth in Hampshire, England, or they go to Pont Neuf in Paris to show their kids where Madeline from the chlldren’s book series played on the edge (I’ve done that). Now, however, cities are kicking things up a notch by getting organized.
Boston, a very literary city, is first out of the gate with a ‘cultural district’ that encompasses the homes of Henry David Thoreau, Louisa May Alcott, Henry James, Sylvia Path and David Hughes and others, all of whom apparently lived within a walkable district of each other. Boston hotels are also trying to get in on the act, with one, the Taj Boston, claiming that Tennessee Williams revised a Streetcar Named Desire on the site. The Atlantic article pokes fun at the idea of a literary theme park, which only means that the writer has not been to Prince Edward Island.
Prince Edward Island was of course the home of Lucy Maud Montgomery, who wrote the beloved Anne of Green Gables series of books. If you go to the Cavendish area of the province where she lived, or really any area of it, you will see Anne everything, from dolls to candy bars. And yes, you can visit the author’s home and the site that inspired the books but you can also partake in a recreation of the town portrayed in the books (complete with dressed up characters), as well as a small Green Gables themed amusement part and waterpark too if I recall correctly. Go in summer and a musical of the book plays every year (highly recommended by the way). Tourists come by the plane full from all over, but especially from Japan where the book is very popular.
Literary tourism is a great idea, and it is one that cities and towns can run with fairly easily. No one may actually make a holiday out of going to Wingham, Ontario to see the birthplace of author Nobel-prize winning author Alice Munro, but the town has hopes they may persuade some to make a side trip from Toronto to visit.
I have to admit, following the antics of the world’s central banks has been a bit of a bore the past few years. Since the end of the financial crisis (no, we are no going to debate whether there is a still a crisis going on), central banks have basically left interest rates at crazy- low rates. Meeting after meeting, they announce that rates are going to stay at those crazy-lows until things improve. And so it goes on.
Lately, however, things have been improving. The economic signals in the U.S., and in Canada too, have been getting better. Accordingly, there have been signs that the U.S. Federal Reserve, amongst other central banks, is close to reversing policy and letting rates go higher.
The Fed may well let interest rates rise, and eventually the Bank of Canada might do so as well. However, in an interesting speech camouflaged as yet another dull pronouncement by a central banker, Bank of Canada second-in-command Carolyn Wilkins today announced something a little bit radical. Here are her words, but I’ll provide a translation from the central-bankease in a minute:
“The bottom line is that potential output growth in Canada and other industrialized economies will be lower than it was in the years leading up to the crisis”…”Our most recent estimate for Canada is that it will average just below 2 per cent over the next two years. This is a percentage point lower than average potential growth in the decade prior to the crisis…We estimate that the real neutral policy rate is currently in the range of 1 to 2 per cent…This translates into a nominal neutral policy rate of 3 to 4 per cent, down from a range of 4 1/2 to 5 1/2 per cent in the period prior to the crisis.”
Translation: The post-crisis world is a slower growth world because of structural changes and because an older population means slower growth. Accordingly, to keep growth at a non-inflationary level, you can have lower interest rates, all things being equal, than you could before the crisis. Pre-crisis, a little growth would get the central banks ratcheting up the rates. Post-crisis, they will not worry about the inflationary impact of growth as much.
Translation of my translation: The U.S. and Canada are going to enjoy lower interest rates, all things being equal, in the post-crisis world than they did in the pre-crisis world
Let’s think about the implications of long term low interest rates. They are positive for the bond market. They are positive for housing markets, and for those wanting to enter it. They are good for businesses looking for capital.
What are long term, low interest rates are not good for? They are not good for the mental health of those baby boomers who want to throw their (not large enough) savings into some kind of safe savings vehicle and know that they are getting a decent return, no questions asked. On the contrary, boomers (and everyone else) are going to have to work harder than ever to find good returns for their money.
Ms. Wilkins may be wrong, of course, and interest rate forecasts can turn on a dime. Still, if she has the larger story right (and it is the same one that economists such as myself have been telling for a long time) then you can add the reality of low interests rates to the list of things that the aging boomers will no doubt lose sleep over.