USMCA: My brief thoughts and opinions

Source: https://www.iisd.org/blog/usmca-nafta-environment

As one the big headlines from the last week (The other, which ended up taking backstage was the subsequent announcement of a $40 billion dollar LNG pipeline and processing facility in northern BC ... for a province with an annual GDP of about $260 billion ... this is huge!) I feel that it is needed to discuss (briefly) USMCA including my thoughts and opinions as to how it will all shake out.

First, let me start off by saying I was surprised by the announcement. I had the opinion that the Canadian team was trying to stall negotiations till the US midterms in order to see how this would influence their negotiating position. I was wrong.  

From what I have seen there are the following notable outcomes from USMCA:

1. Increasing rules of origin for automobiles from 62.5 to 70%
2. 40-45% of auto must be produced by workers earning at least US $16/hr
3. Opening the dairy markets (allowing American Farmers access to 3.6% of Canadian markets)
4. Increasing drug patent lengths (longer time till generics can hit)
5. Increasing copyright lengths.

Let's start off by talking about the benefits:

Business confidence will (has) increased through this deal being struck. that is firms have greater certainty in the future dealings, especially as it relates to cross-border trade. 

Even talking generally with individuals, the view is this is a good thing ... all this seems to point to me that confidence across the board is up, but perhaps my sampling is biased. 

Across the board, I would say the agreement reached on the USMCA is a good thing. With this finalized, I will now be jumping on the band-wagon with the expectation of an interest rate hike on October 24th (especially with unemployment so low and inflation creeping high). 

What about the details. the notable outcomes listed above.

Increasing the rules of origin has been a sore spot for the Americans for a while, so in this case, I am not surprised by this outcome. I can then infer that the reason this is an issue is that we have been skirting around the lower threshold of the rules of origin, meaning that auto-parts are able to be produced cheaper in other parts than they could in the USMCA zone. If this is the case, higher rules of origin mean higher cost parts, means some of these higher costs will be passed on to the consumer (higher price of autos). 

The second attachment to this is that 40-45% of the vehicle must be manufactured with a wage of at least US $16 an hour. Again, not an expert in what the average hourly wage is in this industry, but one of two outcomes exist: 

(A) This is put into place as lip service, but in reality, this threshold has already been easily met or the more likely scenario. IMO.

(B) This is mentioned because, again, most of the production is being done in lower wage areas, and this is an attempt to shift production back to higher wage areas. Again in this sense, the impact of this will be higher costs, passed on to the consumer (higher price of autos).

Longer copyright and longer drug patents mean longer time periods for material to hit the public domain and generic drugs to become available. Again this translates into higher rent for those holding the copyright or patent and thus higher costs for Canadians. 

Finally the dairy industry - the big news item here (or so it seems). American dairy producer will be allowed access to 3.6% of the Canadian market, not a huge proportion, but not trivial either. 

On one side, this entrance (slight as it is) will erode (a tiny bit) of the supply management system and may begin to translate into lower costs of dairy products (although I find this unlikely). 

The caveat to all this though is that the federal government has promised to subsidize dairy farmers (who already earn higher than market prices due to the supply management system) as they had done following the CETA agreement which similarly caused a slight erosion of the supply management system. 

While I find it unlikely that we will be seeing dropping dairy prices, what we do know is that when the government spends (billions?) in subsidies, these have to come from somewhere, that is ultimately a drop in other social services or higher taxes.

Although I have not read the actual USMCA document (nor will I likely to be honest) I have come across several articles which point to a special clause that will prohibit any USMCA member from negotiating future Free Trade Agreements (FTA's) with "Non-Market Economies", IE China. 

If this is the case it is an interesting loss of sovereignty for Canada. Especially as it seems that Washington is the one who decides which economies would be classified as "Market" Vs "Non-Market" 

What are your thoughts on the new USMCA (personally NAFTA was easier to say)? feel free to comment below.  

Staring over the edge. As we try to repeal the carbon tax.

Source: https://www.strathcona.ca/agriculture-environment/environment-and-conservation/

Within an hour I came across the following two articles.

1. from the IPCC on a need for a carbon budget and the very real impacts of climate change, here.
2. from the CBC on Doug Ford (Ontario's Premier) holding a rally in Alberta to challenge the federal government's Carbon tax, here.

An amazing dichotomy of events within a few hours. 

On the one hand, we have the IPCC attempting to bring to light the need for climate reform. On the other hand, we see the political reality (or political appetite to address climate problems). That is once again, let's ignore the problem and hope it goes away! 

I have written before as to why a carbon tax (or cap and trade) will never be popular (here). 

As always my hope is that we will stop playing around with the politics of the issue and deal with the problems in front of us ... however as those who have heard me talk on this know ... I am not overly optimistic that we will have a timely response. 

Earnings by College Major

Source: http://digg.com/2018/college-degrees-highest-salaries-visualized

Trying to figure out what your major should be?

I'll just leave this here.

Interesting follow up though would be to see what the graduate to job opening ratio looks like in each field!

Taxi Industry offers up "alternative" to Uber, Lyft

Source: https://www.videezy.com/free-video/taxi

Update: Later on the same day as writing this, the ministry of transportation released their report; saying they would evaluate introducing ride-hailing by Fall 2019 (about 18 months away). read the press release here.

The Province (newspaper) released today an exclusive that the taxi industry in BC is pushing the government for an alternative to Uber and Lyft. This alternative is a "made in BC solution", which allows British Columbians to have a ride share service (Kater), which operates at taxi prices.

The article can be found here.

I will attempt to keep my sarcasm to a minimum.

Here in BC, many people want Uber and Lyft to be present as this will increase competition in the industry and thus help lower the price of requesting a ride (taxi or otherwise). The taxi industry is clearly against this because it will severely erode their monopoly-level profits which they have been able to hold on to for so long. Case in point, since the introduction of Uber the price of a taxi medallion in NYC has collapsed from a height of $1.3 million to just under $200,000 ... we can infer that if individuals were willing to spend $1.3 million for the right to operate a taxi, the benefit received must have been at least equivalent if not more.

The comedy is that based off of the document presented, their view seems to be that we would just like a more convenient way to hail our taxi's (via app lets say) ... Thus by introducing this new hailing method and service (at current taxi rates), they satisfy the problem while maintaining their extra normal profits.

We do not just want an easier way to request a ride. we want to dismantle the ridiculous market power that the taxi-industry has been able to carve out for itself, introduce competition to the market, allowing market forces to determine the price of a ride and the service provided.

To be honest I was standing in line to buy coffee as I read this article. I had to do everything I could to keep myself from laughing. Does the taxi-industry seriously believe this is a legitimate proposal to satisfy our demands? Or are they staring down the barrel and offering any last-ditch effort they can to save themselves.

what are your thoughts? feel free to comment below.

The Impact of Changing House Prices on GDP in BC

Source: https://www.armstrongeconomics.com/markets-by-sector/real_estate/real-estate-in-decline/

Yesterday (11th of July 2018) the Bank of Canada continued to increase interest rates, as many expected. 

Since the increase in the interest rate, the media coverage has been flooded with conversation around the impact this will have on homeowners. Specifically, it is well presented that Canadian households currently have a pile of debt and will have trouble continuing to service their debt if their payments or obligations increased. you can read a Bank of Canada article on the subject here.

Building off of these discussions, although quite separate, I began to wonder. Here in BC the Finance, Insurance and Real Estate (FIRE) industry make up essentially 25% of our provincial GDP.

As governments continue to engage in policies which aim to make housing more affordable (decrease or slow price growth) and as the Bank of Canada continues its upward movement of interest rates (decreasing the demand and supply of real estate); we have some serious headwinds on house price growth. The question of interest then: Given the size of the FIRE industry in BC, for some change in the house price, how does this filter through to impact our provincial level of output?

To answer this I conducted a simple time-series analysis which allowed me to jointly model both house prices (Teranet national bank composite house price index for BC) as well as the provincial GDP (Statistics Canada).

In order to ensure stationarity, these variables have a log-difference transformation applied to them, giving them the interpretation of the annual percent change. Each can be viewed independently below:

With these variables, I then apply a one standard deviation shock to the transformed House Price Index (HPI), which works out to be about a 4.6% point annual change in the index. Observing how this shock filters itself through both the HPI and GDP over time we see the impact of this shock. This impact is presented below.

First, evaluating the impact of a 4.6 percentage point shock to the House Price Index (HPI) on itself. What we witness is no big surprise, the housing price index jumps in the shocked year (year 1) and then slowly returns to it's normal. With a 95% Confidence level, this shock to house prices has been fully absorbed within 2 and a half years.

Recall we are dealing with growth rates here. Imagine the HPI is doing its thing, then, out of the blue, it jumps by 4.6 percentage points. the effect is an immediate increase in the index, followed by 2 and a half years of additional (but slowing) growth before returning to its pre-shock level of growth. 

Looking at the impact of a shock to the HPI on GDP we witness an impact which was expected. Our shock happens in year one, however, this does not filter through to impact our level of GDP until the second year. At this point, the GDP jumps to an estimated increase of 2 percentage points (fairly large given average growth rates of GDP). However, this impact quickly subsides and is showing no statistical effect 2 and a half years after the shock.

Through this, we can determine the elasticity of GDP to the HPI (for some % change in HPI, what is the impact on the % change in GDP). Thus we can determine the elasticity of GDP to be 0.435, meaning that GDP is not overly sensitive to a change in the HPI, that is GDP would be inelastic. Just the same we can take this to mean that for a 1% point change in the HPI, we would expect to witness a 0.435% point change in the GDP.

So, if we do see a collapse of house prices, this may filter into a bad few years for the BC Economy. Keep in mind, in 2014 when oil prices collapsed causing Alberta's GDP to collapse, Oil and Gas (with support services) accounted for aproximately 8% of Alberta's GDP. Given BC's reliance on the FIRE industry (25% of GDP), a collapse in the price of real estate could very well have a major impact on our provincial economy.

What are your thoughts on this, feel free to comment below.

USA: Janus v AFSCME Part 3: The Case for Unions

Source: https://www.progressivebumperstickers.com

Update decision has been rendered: here and the SCOTUS blog post here.

As promised here is the third and final (maybe) post on unions and their relevance in light of the Janus Vs AFSCME case currently being examined in the US.

My guest author here is arguing in favour of continued union relevance while making the case that the traditional union as we know it has some problems which need to be addressed.

If you are interested, you can follow these links to find Part 1 and Part 2.

Paul Bergin was an assistant US attorney, federal prosecutor and defence lawyer. He famously represented celebrities like Queen Latifah, Naughty by Nature and Lil' Kim. He was a named partner at Pope, Bergrin & Verdesco and by all accounts was a talented defence lawyer. In March 2013, Paul Bergin was convicted of 23 counts of Conspiracy to murder a witness, bribery, fraud, racketeering, drug dealing, and prostitution. He was sentenced to life in prison. We can all agree that Paul Bergin was a corrupt lawyer, using his position of power over his clients to commit multiple felonies. However, because Begin was corrupt does this mean all lawyers are corrupt?

Are there corrupt Unions? One needs only to google the Teamsters union, the operating engineers, the longshoreman, or the labourers Union to get a laundry list of bribery, fraud, embezzlement and more serious crimes. Yet similarly to Mr Bergin does this mean that workplace advocacy on a whole needs to end? This is admittedly a bit of an extreme metaphor but it helps us frame what is being debated in Janus Vs. AFSCME.

At its core Janus Vs. AFSCME is about the union imposing forced membership, which included union fees to Political Action Funds, which were then used to primarily support the Democratic party in the US. Janus is contending that this system violated his constitutional right to freedom of speech by using his money to support a political party that he did not support. The ramifications of this case could be widespread if the Supreme Court overturns the union’s ability to impose forced membership or mandatory Union dues.  

This is a particularly interesting debate due to what is called the “duty of fair representation.” The duty of fair representation states that the union must fairly represent all employees and may not act in a way that is arbitrary, discriminatory or in bad faith. In Illinois where this case is being heard the duty of fair representation is applied regardless of membership in the union. In other words, an Employee who is not a card-carrying member of the union or does not support the union can still take the union to court if it fails to represent him or her. One could argue that if the union is bound legally to represent an employee and the employee benefits from the Collective Agreement, it would be reasonable for the union to charge the employee some sort of union dues.

Similarly to Illinois, in Canada, we have what is called the “Rand Formula,” which states that in a unionized environment all employees must be covered by the collective agreement regardless of membership and must be represented by the union fairly.

Now we come to the rub: where does fair representation end and infringement on free speech begin?

It is my position that there is a real need for continued workplace advocacy. Unions are a natural counterbalance to our capitalistic society, and we would be mistaken if due to unions overstepping we throw the baby out with the bathwater. It is interesting in Canada that mainstream union membership is on the decline, however, there is a movement of progressive unions where membership is increasing dramatically. These unions are based on the European social democratic model where the employer and employees are seen to be working in concert as opposed to the Marxist view of the class struggle between employer and employees.

These progressive unions have a number of core tenants which we do not have time to review here; but of particular importance to this discussion is Freedom of Association. This ideology states that we should have the inherent right to support or associate with whatever groups we desire. As a result, these unions oppose any political contributions. Interestingly, where a mainstream union member in Canada pays anywhere from 3%-15% of their hourly wage in dues, these progressive unions charge the lowest dues in Canada at anywhere from 1%-3% of hourly wages.

There can be little debate that unions have played a pivotal roll in shaping the employment conditions of the western world. It was unions that fought for the five-day work week, overtime pay, paid holidays, sick leave, and workplace safety to name a few. However, large mainstream unions have seemingly lost touch with their membership and have become akin to political parties themselves. It is my contention that rather then do away with workplace advocacy we need to rethink what a union should be in the 21^st century. The Canadian progressive labour movement seems in my opinion the appropriate place to start.

Great insight into the rising trend of progressive unions in Canada and abroad.

To frame both, (including mine, three) arguments together, we all ultimately hold a view that there is a problem with unions as they stand. all three of us, however, take slightly different views as to what course of action needs to be taken in order to correct these failures.

From injecting higher levels of competition to the view that unions are a massive market failure needing to be corrected to a view of hopefulness, that despite the actions of a few (large) players, there is still a need and a hope for the industry of labour representation and that perhaps the market is facilitating this transition on its own.

What are your views on this? Do you believe unions are still relevant? Are they in need of a change to a more progressive model? Or finally, has their purpose been served, leaving them as little more than a rent-seeking shell of past days?

Feel free to comment below.

USA: Janus v AFSCME Part 2: The Case Against Unions

Update decision has been rendered: here and the SCOTUS blog post here.

As promised, I have two guest writers presenting their cases for and against unions as a follow up to the previous post (here) or part 3 to this series in favour of unions (here). Below is the first of the two follow-up posts, making a case against current union relevance. 

Both of my guest writers have requested to remain anonymous, however, the content is still excellent as you can see below!

Lost amid most debate on unions is a tremendously important distinction: what sort of union do we mean? A private sector union or a public sector one? In the mind of most people, unions are associated with mining towns, manufacturers, and other industries tilted toward large employers with little geographic choice among workers. However, in 2018, it's these exact industries that no longer find themselves unionized: there are record low rates of 20% or less across most private sector industries. And a lot of this makes sense to a degree. Labor markets 100 years ago were not really markets in the true sense of the word: workers relocated without perfect information, they didn't have the buildup of capital that exists now allowing for more flexible job searches, the safety net of unemployment insurance systems still hadn't come into being, and mobility has never been more affordable than it is today.

However, one type of union remains strong: public sector unions, and it is these unions that receive the ire of most government reformers. Unlike private sector unions, which, at best, sit on one side of the bargaining table, public sector unions effectively sit on both sides of the bargaining table through their political action at the state and local level that ensures the very elected representatives whose responsibility it is to negotiate with these unions over salaries, benefits, and work requirements. And so it's unsurprising that this moral hazard has manifested itself in union heavy states over inflated public sector benefits resulting in debt, tax burdens, and budget crises. This in part explains the unexpected outcome that most of the heaviest tax burden states in the country also are the most indebted and the most unionized. In New York, Connecticut, New Jersey, Illinois, and California, unions have the strongest legacies of political action, and unsurprisingly these same states all suffer from the highest tax burdens of any other states, while also having the highest debt loads. 
One would think that high debt and high taxes wouldn't go together; it stands to reason that a state with high taxation should at least be paying for itself with those taxes, while conversely, a state with low taxes is somehow shirking its spending responsibility! Instead what we see are states with low taxes and low debt, and states with high taxes and high debt... the common denominator being high levels of political action on the part of public sector unions in the latter.

Simple associations are of course not conclusive economic study, however, the correlations are striking and the theories make sense. In addition to the concerns about moral hazards with public sector unions, there's a deeper more fundamental argument against the way they've existed to this point: their advocacy is by-definition public policy advocacy and political speech: therefore compelled unionization is compelled political speech, something nobody should ever be forced to do. 

In a free society, one has a fundamental right to organization and to collectively bargain if they so choose. However, forced unionization and forced political speech are the opposite of freedom, and in 2018 it's time to do away with the moral hazard and injustices they create.

A great argument! Again the purpose of having these guest writers is to show how several professionals, from different backgrounds and worldviews, can all hold differing thoughts on a subject matter. As a result, it is important to be critical of any idea masquerading itself as the only truth. Whether that be a statement I have made here, in class, or we have heard on the news, the majority of statements are normative in nature, even when backed with positives. 

As professionals, the important aspect is to allow our views to be challenged, entering into debate, not conflict. What are your thoughts? feel free to comment below. 

Cost Comparison of new vehicles

Source: https://www.popularmechanics.com/cars/g1792/12-new-cars-that-are-worth-waiting-for/

I have spent the last few days pricing out the differences in costs between the various hybrids, Plug-in Hybrid Electric Vehicles (PHEV) and Electric Vehicles (EV).

Currently, there are A LOT of options to choose from if you are interested in one of these three classes of cars, with many more set to hit the market later 2018, another round in 2019 and most producers offering full electric line-ups come 2020.

If you are willing or able to wait to buy, my belief is that through increased competition and technological advancements, over the next 2 years, we will see drastic decreases in the cost of these vehicles while simultaneously witnessing increases in electric range and capabilities.

But what exists now? Well based on a current level of driving and costs being faced I worked out the annual, 5-year and 10-year costs of ownership for each car on the market.

This is a limited study, however as it only focuses on new (2018) Vehicles because the data on these vehicles is easiest to obtain. furthermore, it does not include maintenance costs because I could not determine a reliable estimate of the new vehicle types (PHEV and EV). I would expect however that if you include maintenance costs, it would push up the price of Hybrid, and PHEV placing EVs at the lower cost spectrum in the long-run.

Without further adieu, The assumptions followed by the graphs.
Assumptions:

1. Gas is currently $1.459. over the last year, gas prices have increased by 12%. This seems aggressive to continue into the future, so I assume that gas prices will grow at an average rate of 8% a year. 
2. Electricity in BC is on a stepped system, I took an average cost of $0.09/Kwh while over the last year, electricity prices have decreased, I don't see this as a long-run trend so I make the assumption that electricity costs would increase at inflation, thus on average 2% a year. 
3. Car loans are at 5%, with any such loan being amortized over 5 years. 
4. The discount rate is 5%. That is $100 next year is only worth $95.24 today. 
5. Driving a total of 80km a day, 4 times a week (This is high for most I realize). 

Onto the graphs showing the cost by vehicle. First the cost of ownership over the first year followed by the a 5 year aggregate and 10 year aggregate cost. 

First up the annual cost of ownership. 

• Annual loan (blue) is the value of all loan payments in the first year.
• Annual gas - this guy gets a little complicated. 
• If the vehicle is PHEV and the one-way commute is less than the range then technically no gas has been used. However to include "one-off" long trips I have still included a fuel usage at 10% of total km driven. 
• Otherwise, the gas usage is straight gas usage based off of average L/100km. 
• Annual Electricity - How many Km driven versus the range of the vehicle providing the # of full charges required in a year. The Kwh required to charge multiplied by the cost yielding the electricity cost. 

At the 1 year horizon. 4 out of the 5 cheapest cars are hybrids, with one PHEV (Hyundai Ioniq EV+) making the list.

Moving out to the 5 year mark. at this point we are incorporating inflation of gas, electricity, as well as my discount rate (Future payments are not worth as much to me as present payments). As expected over this time period, the pricier cars which don't depend on gas begin to migrate to the cheaper side.

On the 5 year horizon, the top two remain constant, however, in the top 5 now only 3 are hybrids, one PHEV and one EV (Hyundai Ioniq dominates here).

Finally the ten year horizon, over this horizon the cost of gas begins to outweigh the larger purchase prices and the EV's overall begin to win out ... If you keep them, and they are not obsolete in 10 years...

Now the top 5 are made up of 3 EVs, one PHEV, and one Hybrid. over this time horizon, the cheapest vehicles are the 3 versions of the Hyundai Ioniq (EV, PHEV and Hybrid) as well as the Kia Soul and Nissan Leaf.

So if you are considering buying a vehicle, and view each vehicle as having very little differentiation, then the clear winner is the Hyundai Ioniq series of cars.

If you have a degree of preference of one model or brand over another, then you can begin to weigh your options between price and preference.

For this, I would really focus on the 5 year time horizon. Over the ten year horizon I feel that there will be so much technological change over the next ten years that the majority of vehicles bought today will be nearly obsolete in relation to the range and capabilities of the vehicles ten years from now.

This is all my 2 cents at least.

What are your thoughts? what do you think about all the new EV, PHEV cars hitting the market? Feel free to comment below.

Speculation tax push back.

Source: http://www.oecd.org/social/affordable-housing-database.htm

Since the proposed speculation tax in the 2018 BC budget, the news has blown up with opinion pieces and articles in opposition to this tax. some examples can be found here and here, although there are many more.

Predominately it seems that the majority of the outrage comes down to a misunderstanding of the tax due to a poor choice of naming. That is, the outraged cry is usually along the lines of

"I am not a speculator, I just have a home in Saanich which I only live in a few months in the summer because I love the area" 

True, these individuals are not speculating, but the problem still remains, they own a piece of capital (housing stock) which they are choosing to allow to sit idle while so many individuals in the region are unable to find housing, let alone affordable housing.

Thus the trouble is in the name, this should not be labelled as a speculation tax but rather a vacant homes tax. In this way, we get around the problem that keeps arising from people feeling as if they are being labelled as a speculator while addressing the real problem of an idle capital stock.

The recent article listed above (first hyperlink) by the Times Colonist claims that the new tax will be a job killer as it will depress the housing market due to the fact that people will no longer be buying properties (to sit vacant for the majority of the year).

True, if this tax successfully decreases the housing market - this will hurt the BC economy in the short-run. Currently, the FIRE (Finance, Insurance, Real Estate) industry accounts for about 25% of BCs GDP  (23% in 2012, 24% in 2016), making it the largest contributor to BCs economy by far. That is, if this tax successfully pushes down housing prices, it will ripple through the entire FIRE industry, pushing down BC's GDP, pushing up unemployment (all else equal in the short-run).

Does this then mean its a bad thing? Well yes... but.

The alternative is we do nothing, we allow capital to continue to sit idle, allow housing prices to continue to inflate exponentially faster than wages until we arrive at such a discrepancy (currently being seen in Toronto, Vancouver, etc.) that professionals can no longer afford to live in these municipalities, which similarly hurts jobs as there is no labour to be had. (here, here).

Along these lines talking to several HR professionals in the CRD I am continually hearing the same story that the only applicants they receive are either (A) from established (older, near retirement) Victora applicants or (B) from Vancouver (higher priced market). Any time a qualified applicant is offered a job outside of these two areas the applicant resultingly turns down the offer due to lack of housing.

If labour refuses to move here for jobs then employers have two options. They can either (A) begin to offer higher salaries (which would help offset the cost of living) or (B), if possible, they will relocate to other areas which jointly offer lower wages as well as cheaper land, thus jointly decreasing two costs of production.

So yes, this tax does stand to hurt us today - the alternative is prolonged hardship and a flow of labour out of the region, similarily contracting the economy in the future.

What are your thoughts on the new speculation (vacant homes) tax? will the benefits of this tax outweigh the costs or will the distortionary effects of a tax create more harm than good? feel free to comment below.

USA: Janus v AFSCME

Source: http://www.cartoonwork.com/details.php?gid=57&pid=128

Update decision has been rendered: here and the SCOTUS blog post here.

Back in front of the supreme court is the case of Janus Vs AFSCME - in essence (as I understand), the case hinges around the right of public sector unions to charge non-members' fees above basic bargaining fees. That is, can unions collect dues which then fund the unions lobbying agenda - which may conflict with the individual's political views.

A quick google search on the topic will provide a wide range of views and debate on the matter from a variety of news sources. The one(s) written by the economist I find exceptionally informative, but will be typically be blocked by a pay-wall. here is a link to an article from the BBC. Being a paper located outside of the US - I found the analysis (a little) less polarized when compared to news sources located within the US.

A recurring theme through all the articles is that if (which seems likely) the supreme court rules in favour of Janus, this will potentially cripple public sector unions in the US. This at a time while union representation is already at record lows and falling.

The question always is - is this a bad thing? we have an affinity to believe a loss is bad. from the destruction of a historic building to the extinction of some species. the fact is that throughout history the environment, society, and the economy has changed and evolved and what was necessary at one point is obsolete at another point.

Can this argument then be made for unions? That is, have unions had their time, exhausted their usefulness and now on their way out? My answer: it depends.

Side Note: My hope is to have in the coming weeks two guest authors present their views on the case and offer their differing opinions as to the implications of the expected ruling and what they view the future of unions should be. 

My opinion and I want to stress this is my normative view on the subject matter, is that unions in their current state are broken and a dying breed. unless the industry of labour representation can be drastically re-envisioned, workers will continue to question the effectiveness and usefulness of unions, while industry continues its pressure to weaken unions.

If unions are unable to re-invent themselves I believe it may be a good thing for them to go the way of the dinosaur. By far and large the majority of unions are rent-seeking firms which lack any real incentive to effectively represent their member's interests over their own.

Primarily this is because they face little if any competition. As a result, once a union is entrenched it can maintain a steady revenue stream from its member base as long as it does not grievously offend said base.  Importantly, this also means they can continue to collect dues without providing any value-add service to the membership either - in essence, they simply collect an economic rent from their members for existing.

On the flip side of the coin, my hope is that unions do not disappear but are able to re-envision themselves. In an age of growing inequality, rising importance of capital, consolidation of large companies and stagnating real wages union representation and bargaining power is required to offset the monopsony or oligopsony power presented by the firm.

Some see the problem with unions to be the system of collective bargaining itself and thus seek to destroy them. Alternatively, perhaps unions and collective bargaining serve as an important balance to the market power of firms, but equivalently need competition among themselves to prevent the complacent and rent-seeking behaviour which we currently see.

What if we were able to stimulate a level of competition amongst unions and labour representation such that at regular increments (say near expiration of each labour contract) the labour base would evaluate the performance of their current union, and solicit tenders for representation from other competing unions. In this way, we could maintain the balance of market power between large firms and the labour pool, while encouraging unions to face market forces, competing to prove their effectiveness as a representative of choice for their membership.

What are your thoughts? Are you represented by a union? Do you view the union as value-add service or rent collecting drain?

Feel free to comment below and check back in the coming weeks to see the views from by guest authors.

Sounds like the cold war is back...

Source: https://play.google.com/store/apps/details?id=com.bethsoft.falloutshelter

Over the last week, I have seen little pop-ups from time to time about "experimental new Russian Weapons"

Then today, that Russia has developed an 'invulnerable' or nuclear-capable ballistic missile which is not able to be intercepted.

All this just months after speculation that relationships with Russia were getting better.

If this is the start of the next arms race, I better brush up on my Game Theory.

What are your thoughts, feel free to comment below.

BC Budget - Housing

Source: https://www.facebook.com/homeiswhereitstarts/

As expected one of the big highlights of the recent BC Budget (yet to be passed in the legislature) is the focus on implementing new policies in order to deal with the housing affordability issues we have seen in BC over the last decade.

The full BC Budget can be found here, the highlights here, and finally the focus on the housing action plan here.

First some praises for the plan.

The plan, although not perfect, aims to deal with both demand and supply side problems currently being faced by the real-estate market. With these policies being aimed to cool demand and stimulate supply (Contrast this to previous policies such as 0% downpayment loans to help first time home buyers. A policy which further stimulated demand).

On the Demand side:

• Introduction of a speculation tax.
• Increasing the foreign buyers' tax from 15% to 20% and expanding this tax out of Metro Vancouver to include the Fraser Valley, CRD, and Okanagan.
• Increasing property taxes (school tax rate) for properties over $3 million. 
• Actions to prevent speculation and pre-sale condo re-assignments. 

On the Supply Side:

• Government $6 billion dollar investment in affordable housing
• 14,000 rental units for 'middle' working families.
• increasing student residences at universities and colleges.
• Providing changes to property taxes to encourage rentals. 

What does all this mean? Let's start working on the demand side followed by the supply. 

First the speculation tax, other than the announcement of the idea of a speculation tax, we know very little as to what this would entail, as a result, it is difficult to say what effect this may actually have on the market. Just the same, I am under the belief (normatively) that if effectively placed could have a significant impact on cooling the market. I have written several times on the role of speculation in the housing market, starting with this article here.

Second the Foreign Buyers Tax. I have written about this before as well. to be brief - I am not a fan of this policy. To read my reasons why you can find the previous post here.

Increasing property transfer taxes and school rate taxes for properties over $3 million: There is a part of this policy which seems satisfying. Ratchet up the taxes for those rich enough to afford a $3 million mansion, but keep in mind, many of the people who have found themselves owning multi-million dollar properties are seniors, on fixed incomes who have just always lived in their house and seen property values rise exponentially around them! 

I have witnessed several sad experiences where seniors have come into the bank, they had bought their property decades ago, out in the boonies, only to find that now their property has exploded in value, with the property taxes being so high that they can no longer afford to pay them through any method other than a reverse mortgage, or city lien on their property. 

Finally, actions to prevent speculative pre-sale re-assignments of condos. Again my belief is that this could be an effective policy, as with the speculation tax, however, the big question I have is what does this look like and how will it be enforced. 

To the supply side: 

A $6 billion dollar investment over the next ten years. Let me start by saying that a minority government releasing a spending plan over the next ten years is rather wishful and thus leaves me skeptical. 

I am not sure of the exact details or conditions of this $6 billion, so let's assume this money is available as financing, and funding for public institutions to increase rental housing and student residences. 

First, building 14,000 rental units for the 'middle'. This may be a great idea, but ultimately I feel it will fall into the slow molasses of municipality zoning and bylaw processes which many have argued to be the primary supply problem contributing to the current affordability crunch. Thus I am interested to see how this materializes.

If this does materialize and if this materializes as 14,000 new rental units, not just "14,000 rental units over the next 10 years" then this may have an effect of driving down rents in areas like the CRD and Metro Vancouver where rental affordability remains just as much of an issue as purchasing a home (near 0% vacancy rates in both regions). 

An increase in investment for student housing will also help to relieve the pressure on rental markets (again primarily in university towns such as Nanaimo, CRD, Lower Mainland and the Okanagan) by allowing students their own specific residence it frees up more rental units for the rest of the population, thus allowing an increasing vacancy rate and decreasing price pressure for rents. 

In conclusion, there are still a lot of unknowns with this housing action plan, but preliminary evaluation looks promising to slow (or temporarily) reverse the acceleration of home and rental prices through policies aimed at cooling the demand while stimulating the supply. 

In the coming weeks, I am sure the specifics of these policies will be revealed. Given the nature of politics, come that time I may have to retract the optimistic tone I have. 

What are your thoughts on this policy?  I have taken a rather one-sided approach in my discussion above, but all policies are going to have both winners and losers. Think about who the losers are following the imposition of these policies and what this means for them. 

Feel free to comment below. 

Upcoming BC Budget

Source: Times Colonist

With the throne speech recently taking place, and the BC NDP set to deliver their first provincial budget later today. Some key points I'm interested to watch.

First: the notion of $10 a day childcare. Although an interesting proposal ... Currently, parents struggle to find child care at current rates ($600-$700 a month). The problem being if we lower the price and boost the quantity of child care demanded ... How do we satisfy that demand when already childcare provider are in short supply at current rates!

Second, without a doubt, I would expect a large amount of funds to be directed to the Fentanyl crisis. the interesting part to watch is who is going to receive these funds, as I am sure there are many organizations who are jockeying to position themselves to access this. From municipalities (Fire, Police), to addictions and mental health counseling programs, to the greater healthcare system on whole (including BCEHS). I feel the question is not if money is coming for this, but rather who is set to get the money.

Finally; the big topic on many people's minds is housing affordability. This will be one that I am really watching. I have seen a few ideas tossed around between a speculation tax, Short term rental restrictions, "affordable rentals" for low-income families as well as increasing student housing.

All may have differing effects. But I'll be interested to see what is announced.

Your thoughts? Feel free to comment below.

Cost of red lights on Vancouver Island

I, like many residents of Victoria, frequently make the trip up island to visit the rugged beauty and outdoors of the north island. Like many, I find my self increasingly frustrated with the traffic lights on a highway.

For those not familiar with Vancouver Island. there is one main artery, highway, running from Victoria, north to Nanaimo. At Nanaimo, this highway (Hwy 1) enters the city to the ferry terminal before continuing across the strait in Vancouver. For those of us who want to continue further north than Nanaimo we more or less stay on the same highway, although it changes names to be Hwy 19.

Although this is a highway, stretching approximately 130 km from the CRD to Parksville and is the main route to travel North/South along the island, it is littered with traffic lights continually stopping traffic and creating congestion along the route.

Finally, in a recent trip, I watched to my horror as I was stopped an astounding 23 times during this stretch for a red light - I figured (as many people say) that I hit every single red light along the route.

Well, in fact, I did not, there are 42 traffic lights along the route between the Goldstream turn off (start of true Hwy at the edge of the city) and the Parksville turn off (where oddly enough, fewer people drive but they have done away with lights in favour of overpasses...). That is I was only stopped by about 50% of the lights.

Regardless this had me thinking about the social cost of these traffic lights due to idling and additional fuel usage through acceleration.

The first thing to determine was the average idling cost. Now there are many different types of vehicle on the road, so utilizing information from Natural Resources Canada to determine the % of vehicle by class (here) - as well as idling information from the US (here) I attempted to link idling information up to vehicle class and determine a weighted average of fuel used while idling. this worked out to a low 0.01884 L/minute. or 0.000314 L/Second

With a loose estimate of idling usage, at a cost of gas currently at $1.36/L this works out to a cost of:

$0.0256/minute or $0.000427/second ... does not seem too horrendous.

Next task then was to determine how much fuel is used every time we need to accelerate back up to speed. Casually googling this information yielded that acceleration can increase fuel consumption by 10-30% ... to pick the middle path, I chose to utilize an increase of 20%.

If acceleration causes an increase in fuel usage by 20%, I needed to figure out what base fuel usage is. utilizing the above date I worked out that the average fuel usage could be expected to be around 11.34 L/100km (remember we have everything from small sub-compacts to Semi trucks driving the road). this yields us an average cost of $15.42/100km

Assuming this 20% increase in fuel usage, and further assuming that it takes us a full Km to get back up to highway speeds from a full stop, this gives us a cost of accelerating at $0.1851 each time we have to stop.

So we have our cost of idling, we have our cost of accelerating. anecdotally I find that on average if I am stopped, I am stopped for at least 20 seconds. extrapolating our previously calculated amounts, this gives me an average cost per redlight of $0.19364 - Just under $0.20 each time we have to stop.

At this point, the whole task seems rather trivial. Even if I was stopped at every red light (42) that would only be an extra fuel cost to me of $8.13.

So turning to the ministry of transportation I collected their traffic volume data for this highway over the stretch of interest (here). I found that on average 26,728.39 vehicles are traveling this stretch on any given day. Now things begin to add up ... but clearly, they are not all stopped at all red lights!

Suppose that a driver has a 20% chance of being stopped by any given traffic light, we can use a binomial distribution to determine how many times these 26,728.39 cars are stopped over their travels.

We find based off this that on an average trip we will be stopped at 10.53 lights (which seems about right from my experience). Further - my event of being stopped 23 times does not even register as a likely outcome!

From this distribution, though we determine that on average on any given day vehicles on whole stop 281,478 times between over this distance.

That is, at an average cost of $0.19 per stop, we have a daily fuel cost of $55,102.04 ... no longer a trivial amount! Extrapolating this out for a full year (365 days) and we have an annual fuel cost resulting from these traffic lights as $20,111,244.60 - that is $20.11 Million dollars a year at present fuel prices.

Add on to this environmental impacts (from burning all this extra fuel) as well as extra transportation time for shipping companies etc. and these red lights turn out to be quite an expensive toll on society!

What are your thoughts on these traffic lights? feel free to comment below.

Update May 2018: the Gas price has increased from $1.36 to $1.55 due to this spike in gas prices - estimated annual cost due to traffic lights has increased to $22,922,044.

Rate Increase

Source: http://eldercarebroker.com/wp-content/uploads/2016/08/rateincrease.jpg

Old news by now, but if not aware, Bank of Canada increased the overnight rate by 25 basis points from a rate of 1.00% to 1.25%

I posted briefly about this as well as a link to an article by Don Pittis at the CBC outlining the headwinds the Canadian economy is facing.

Although I never commented ahead of time as to what I predicted would happen, I will say I was pleasantly surprised by the rate hike.

That is, my thought (with nothing but anecdotal evidence to support) was that interest rates would remain at 1.00% for the time being. The rationale for this was:

• There is a lot of uncertainty regarding the future of NAFTA, if this is at risk of being canceled, this could be a serious negative shock to Canada's Economy.
• Increase in the minimum wage may have a similar impact (however also may cause cost-push inflation).

On top of these two headwinds, we also have the effect that increasing interest rates have on consumption, and thus output. That is, an increasing interest rate acts as a negative shock to consumption, and thus to aggregate demand. Keep in mind, this is the big reason why the BoC wants to increase interest rates, as this effect cools inflationary pressures.

This is also the rationale I have when I state that I was pleasantly surprised by the interest rate hike. As we have watched Canadian debt levels explode over the last few years, it seems that an increase in interest rates is required to cool this growth in debt. 

What are your thoughts on the interest rate hike, with another expected 3 hikes this year, is this too much too fast or just what we need?

feel free to comment below.

Looming increase in rates?

Image Source: https://economictimes.indiatimes.com

Don Pittis has a decent article here on the role Bank of Canada has in the Canadian economy and how they have to temper their decisions based on the current political realities of the time. Primarily the increasing minimum wages (Ontario and Alberta) as well as considering a possible end of NAFTA.

The bank of Canada is mandated to maintain a stable inflation rate bound between 1% and 3%, the big politics of late have even bigger economic ramifications which will ultimately affect how the Bank of Canada responds.

Keep in mind when the Bank sets their interest rate we expect it to take 8 to 24 months for the monetary transmission mechanism to fully work through the effect the actual economy.

What are your thoughts, should we expect an increase in interest rates coming up?