Blog Archives

The Economic Unconscious

“One approach to determining whether the disincentive effect of income taxation on labor supply is important is to study the behaviour of workers in different countries with different income tax systems and see what we observe. In an article in the Minneapolis Federal Reserve Bank Quarterly Review,1 Edward Prescott does just that.  Prescott studies the G-7 countries, which are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, and examines two periods of time, which are 1970-1974 and 1993-6.  One key feature of the data that Prescott focuses on is that, in the earlier period, labour supplied per person was about the same in France, Germany, and Italy as it was in the United States. However, by the 1990s, Americans were working about twice as hard (in hours worked per person) as their counterparts in France, Germany, and Italy.

What could account for this difference in labour supply behaviour between the United States and Europe?  Possibly Europeans just like vacations more than Americans do (indifference curves are different in the U.S. from Europe), or market wages (before taxes) are higher in the United States than in Europe.  Prescott argues that the major reason for this difference in labour supply behaviour is differences in marginal tax rates.  That is, in real-world income tax systems, typically the tax rate varies with the level of income.  For example, in Canada and the United States the poor are taxed at a lower rate than are the rich. The marginal tax rate is the tax rate paid on the last dollar of income that a person earns, and this is the tax rate that matters for that person’s behaviours.  In France, Germany, and Italy, in the period 1993-1996, the marginal tax rate for the average person was about 60%, compared to 40% in the United States. For this to matter for labour supply behaviour, it would have to be the case that there is a very large substitution effect[*] of a change in the real wage on the quantity of labour supplied, relative to the income effect[**].  Prescott measures these effects and finds that, indeed, the measured substitution effect is very large.

How could Prescott’s findings matter to us as economists?  One example he uses relates to social security systems. […] The type of social security system in place in the United States is a ‘pay-as-you-go’ system, which funds payments to retirees from taxes collected from the working-age population. If Prescott’s results are correct, economic efficiency could be improved greatly could be improved greatly by moving from pay-as-you-go to an alternative social security system that does not tax workers at such high rates, thus increasing the quantity of labour supplied.  The Canada Pension Plan (CPP), which is Canada’s social security system, is actually a hybrid system that incorporates features of pay-as-you-go and so-called fully funded plans….  Prescott’s analysis would tend to imply that the CPP is more economically efficient than U.S. Social Security, as it does less to discourage labour supply.”

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1E. Prescott, 2004, “Why Do Americans Work So Much More Than Europeans?” Minneapolis Federal Reserve Bank Quarterly 28, No. 1, 2-13.

Williamson, S. (2010). Macroeconomics, 3rd Ed. Toronto: Pearson Education Canada, pg. 108-9.

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*Substitution Effect – The effect of a change in price of a good or service on the quantity bought when the consumer (hypothetically) remains indifferent between the original and the new consumption situations―that is, the consumer remains on the same indifference curve.

**Income Effect – The effect of a change in income on consumption, other things remaining the same.

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Protesters Will Occupy The TSX on October 15

Apparently a group has been formed that plans to occupy the Toronto Stock Exchange (more specifically, the intersection at King Street West and York Street) starting on October the 15th, obviously inspired by the Occupy Wall Street protesters.  The group calls themselves Occupy Toronto Market Exchange, and their site (still under construction) is located here. [Edit (10/07): Their site, hosted on Tumblr, has been shut down.  Their Facebook & Twitter pages are still operational, however.] As well, numerous Canadian cities including Vancouver, Edmonton, Calgary, Saskatoon, Montreal, Winnipeg and Regina have made Facebook pages calling people to protest, and several of these groups have already hosted meetings.

Occupy Toronto Market Exchange have already made several headlines (see here, here, and here), which is notable since the Wall Street protests have received minimal media exposure. I presume that their choice of starting date (which they address here) is motivated by the video by Anonymous which states that there will be protests all over the world on October 15th. Apparently, there are over 50 protest groups throughout Canada with pages on Facebook (see a spreadsheet here), and the total number of people could possibly exceed 300,000, since it has been growing at a rate of 20-25% since October 1 (Source).

Though OTME has not yet developed consensus on its raison d’être (and, to its credit, hesitates to speak on behalf of all of its members), the following may be taken as a tentative statement of intent (from here):

What we can say is this. OccupyToronto and OccupyWallStreet are about offering space for constant and consistent direct democratic action. While we understand that all of us have lives and things we’d rather be doing, it is crucial that if you support this movement, we ask you to offer whatever you can, be it time, knowledge, supplies, or an idea. Only through the shared efforts of the people, will we see any change. Only through constant pressure on banking institutions and the government will they learn that the people are speaking, and will continue until we are heard and obeyed.

According to this article, the main complaint against Occupy Wall Street (which will inevitably be brought against OTME as well) is “that it is leaderless and has dozens of different answers for ‘why are you here and what do you want?'”  Frankly, I admire that there is no defined leader (though there is a small group of organizers, which is more or less necessary if there is to be any hope of order), since it bypasses the metonymy of a charismatic leader, which leaves a group so susceptible to damage if the leader’s reputation is tarnished (as was the case with Julian Assange’s sexual assault scandal).  Furthermore, I would be much more worried about latent fascist tendencies among the protesters if they were to have a single goal; the group remains a subject group which creates for itself a multiplicity of desires, rather than a subjugated group which is bound to a narrow, one-dimensional goal.  Nevertheless, it would perhaps be very beneficial if representatives of OWS & OTME were to develop statements of intent which, as it were, spoke the language of those who are disinclined to even entertain the thought of an alternate society (a group which, I must admit, includes myself).

I have never been fully in favor of the OWS protesters, and have quite frankly been enraged with how nebulous and/or self-indulgent some of the individual protesters’ complaints have been (see the video here).  Nevertheless, I’ve come across some very specific and practical demands by OWS which are entirely realistic, such as (according to a comment here) removal of corporate personhood, public financing of political campaigns, and reinstatement of stiff financial regulations such as Glass-Steagall.

I wish I could do more than (in the manner of most intellectuals) supinely observe the proceedings, but quite frankly I can’t afford to step out of line and, as they say, get my hands dirty.  The most I can offer is to do my best to amass statistics, arguments, and possibilities for change, disseminating linguistic capital to the protesters in order to refine nebulous utopianisms into realpolitik.  For now I beg protesters to read my essay on where the Tottenham rioters went wrong, and learn from their mistakes. I don’t think that your protesting will amount to anything. Prove me wrong. Godspeed.

[Edit (10/04-5): CBC has published another article here on the protests which is quite hostile to both OWS and OTME, and there are several other articles focusing on OWS.  A manifesto is currently in development, though it seems that the administrators are waiting for consensus on demands by each of the protest movements around the world. This incompletion, however, does not prevent CBC from stating in the aforementioned hostile article that the manifesto “contain[s] little in the way of concrete demands or actionable changes.”  As well, the Twitter site for the OTME movement is here, their Facebook page is here, and the discussion board for the various protests throughout Canada can be found here.]

[Edit (10/07): OWS has released a collective statement which can be heard here. As well, OTME held their first general assembly in Berczy Park at 5:00pm today.]

[Edit (10/08): A report about Occupy Vancouver, including a link to Obama’s statement about OWS, can be found here.]

On World Population, Hydroponic Cucumbers, & Milk

Countries of the world proportioned according to their populations as of 2010

I just found an excellent video on CBC News. Apparently, “the world prepares to welcome its seventh billion inhabitant sometime this year.” Its eighth billionth is projected to appear in 2025, but world population is expected to settle at 9-10 billion by 2100. As well, India is projected to become the most populous country by 2050.

Oh, and by the same institution (Agence France-Presse): Malthus, anyone? No, to invoke Malthus is to be overly pessimistic; I think that hydroponic growth sounds quite promising, especially if we can manage to do such farming in multiple floors of skyscrapers, which would provide a more efficient use of space than our clumsy acre system, and the lack of wasted resources would allow the world’s poor to be fed with little to no extra water and nutrients used (which is especially pertinent given the looming water crisis). The main problem is accumulating energy cheaply enough to make these projects profitable…

Hydroponics allows an indoor (i.e. weather-independent) means of growing foods with no waste of water & nutrients; with every variable known & controlled, hydroponics epitomizes the modernist project.

In 1988, The Newfoundland government (Canada) donated $13 million of taxpayers’ money to build a “space-age greenhouse” which would hydoponically grow cucumbers which would sprout to full size within six days. Unfortunately, because of the market being flooded with cucumbers, the company, Enviroponics, had to sell their cucumbers at $0.55 wholesale, while each cucumber costed them $1.10 each. According to a survey near that time, the average Newfoundlander ate only half a cucumber a year, and Enviroponics could not export their cucumbers at a profit, so surplus cucumbers flooded Newfoundland’s market, and its dumps (reminiscent of the semi-recent European milk crisis, except less morally ambiguous and more inept; point your mouse at the links for explanation). In 1989 Enviroponics went bankrupt, selling its facility to another company for $1. A total of about 800,000 cucumbers were produced, and the cost to taxpayers per cucumber was $27.50, compared to 50 cents for cucumbers produced out of province and sold in Newfoundland grocery stores. This “boondoggle” (i.e. fiasco) has since become a symbol of foolish government spending. (via)

Close-up of a hydroponic apparatus (cf. the diagram above)

Just a little history lesson. Nevertheless, it’s been 20 years, no? Surely hydroponic science has progressed a bit further since then. At any rate, however, the world is in no state to revolutionize farming methods anytime soon. Still, hopefully the above has suggested that the modernist dream of ‘mapping’ every variable of the world is still going strong, despite the postmodernists clamor. But then, social science is still in its infancy compared to the mass progress of the natural sciences (as Imre Lakatos asserts, with whom I more or less agree), yet it’s precisely this latter field that will most likely give representatives of the modernist project a run for their money (hopefully in the literal as well as the figurative sense).

Rick Mercer & Canadian Identity


[I wrote this for a writing contest a few years ago, with the theme ‘the greatest Canadian’.]

In medieval times, the opinion of the court jester was sought by royalty for his view on their decision and was listened to in an open and respectful manner. This may seem odd to some, but consider: very often the royal advisors were parasitic profiteers, disregarding the greater good in favour of their own ends. The jester was given permission to parody any royal proposals made, revealing their absurdities and disadvantages―in effect, expounding a disinterested point of view.[1] The jester was an invaluable asset to the royal courts, and we Canadians have a fitting equivalent.

Rick Mercer may be looked down upon by some as being superfluous to society, yet his impact on the scope of Canadian culture must not be underestimated. As he himself has said, more Canadians receive their information regarding Canadian politics from his show than from CBC News[2]. Now of course, some may view this statistic as shameful, as evidence of the deteriorating intellectual fabric of our generation. When considering the hectic lives of Canada’s citizens, however, can one really point a finger? After a day of work, caring for children, and the vast array of obligatory duties which each Canadian must inevitably endure, must society also expect them to submit to the operose dronings of bleak, one-dimensional propaganda?[3] Rick Mercer provides a genuinely entertaining self and societal deprecation as well as informative news outlet; an effective multitasking for a stressed population which might otherwise be tempted to tune in to one of the surfeit of inane alternatives. Mr. Mercer provides accommodation for the vast demographic which might otherwise remain uninformed of Canada’s perspective of world events as well as its own political ineptitudes.

Truly, Rick Mercer is one of the great Canadian social critics, and is an invaluable blessing to Canadian culture.

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[1]: Oech, R. (1983). A Whack on the Side of the Head. New York: Warner Books.
[2]: I’m not sure of the specific episode on which Mercer says this, but I saw it myself.
[3]: This is extreme, of course, to the point of being bombastic, but at the time of writing I had just watched an documentary on Fox News which seemed to justify such sentiments.

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Since writing this, my thoughts related to Mercer have become more articulate, though I doubt I could compress them into 300 words. Read the rest of this entry