Monthly Archives: January 2017

Supply management: a costly endeavor

SM.pngSource: Trevor Tombe, Twitter @TrevorTombe

By Alex Whalen, AIMS Operations Manager

The viability of supply management has come into discussion lately due to the new Trump Presidency. Dalhousie University’s Dean of Management, Sylvain Charlebois, a food expert, recently issued a press release examining the potential effects of Trump policy on the Canadian Dairy Industry.

Following Dr. Charlebois’ announcement, AIMS President Marco Navarro-Génie appeared on the Sheldon MacLeod Show. Dr. Navarro discussed the economics of supply management and why they are prejudicial against consumers. The simple explanation is that in Canada some industries, dairy being most prominent, have a restriction on production. The result is more profit for the producers at the cost of a higher price for everyday consumers.

This leads one to wonder: how do producers get away with such a scam? The answer lies in the distribution of costs and benefits. The costs of supply management are large in the aggregate, but relatively small on any individual purchase. A few extra pennies per transaction is not enough to outrage the public, even if the total costs are enormous. On the other side, the benefits of supply management are large and distributed among a small number of vocal, organized, and politically strong producers.

This phenomenon is analogous to the issue of inter-provincial trade, which has made it into the public lexicon only sporadically. The costs of not allowing Quebec beer into New Brunswick, for example, are small on a per-transaction basis, but large in the aggregate. The benefits accrue to a single entity, NB liquor, and in other cases, to Quebec’s SAQ, the LCBO, etc.

Recent trade deals reveal just how bad things have gotten. While we see occasional lip service paid to abolishing supply management, the provisions included in actual deals are paltry. For example, the recently negotiated CETA allowed for just 2% of the Canadian cheese market being opened up to foreign producers. Such reforms are merely symbolic and do not match the intensity of the problem.

For economists, demolishing inter-provincial trade barriers and phasing out supply management are as close to consensus items as you may find. However, the problem is not economic, it is political. The answer to these issues lies in the broader consumer base realizing it is being conned to the benefit of a select few. Such anti-market interference is unjust and consumers should demand better.

All their economic roads lead to more spending

screen-shot-2017-01-06-at-2-34-12-pmIn commenting against our recent study exposing talk of “austerity” in Atlantic Canada as alarmist, Jordan Brennan’s prescriptions are misguided. Brennan himself recently published a paper with the Canadian Center for Policy Alternatives that depicts as austerity measures the modest attempts to keep government spending under control in Nova Scotia.

However, Brennan’s comment is useful in that it draws attention to an economic worldview that no one endorses, save those who profit from it. That view offers government growth and the hiring of more civil servants as the response to both a succeeding and a failing economy:

  1. If the economy is contracting, their standard recipe is that growing government and hiring more public sector workers serves as an economic stimulus and will prevent deeper recessionary troubles.  This suggests spending one’s way out of recessions, as British economist John Maynard Keynes proposed.
  2. If the economy is growing, Brennan thinks that governments ought to hire more public sector workers in order for government growth to keep up in proportion to overall economic growth. This suggests spending one’s way through economic booms (It means little that this is the opposite logic of point 1, and the contrary to what Keynes prescribed).

Brennan goes on to taunt the productive sectors of the economy in near-zero growth: “Nova Scotia’s public sector is giving a boost to overall employment growth when the private sector has not stepped up to do its part.”

Apart from the contradicting issues, the vicious circularity of the last point is lost on me.  Taxed more and more in order to pay for the bloated public sector in Nova Scotia, the productive sector is less able to hire additional workers.

It is not a shock to see that for those who over time profit most handsomely and most directly from greater and greater government spending, the only solution to every type of economic situation is more government spending.

 Editor’s Note: This blog entry is the final part in a series of four blog posts related to our recent paper “Measuring Austerity in Atlantic Canada” by Patrick Webber. Following misdirected comments and criticism of the study, we compiled this series to clarify misconceptions and to underscore its findings. Read part one here. Read part two here. Read part three here.

Missing the point

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By Jackson Doughart, Policy Analyst

Unifor economist Jordan Brennan has criticized AIMS’s study Measuring Austerity in Atlantic Canada. In this blog series, my colleagues examined the arguments he presents and responded to his criticisms of our methodology here and here. I add a note on how Brennan seems to have missed the purpose of our research.

Brennan writes, fairly, that there a lacks precise definition for “significant cuts” in public expenditure and “difficult economic conditions,” the two components that report author Patrick Webber includes in his description of austerity. That there are competing academic definitions in the literature is a point that Webber acknowledges in his introduction, with the general description being sufficient for the purposes of the study.

Webber included European cases of austere economic conditions for context – giving the reader some idea of the magnitude of budget cuts in places where government has implemented austerity policies. However significant cuts must be to qualify as austerity, the fact is that Atlantic Canadian governments have been growing their program spending regimes, not cutting them.

For his part, Brennan equates austerity with any cut in the level of spending when he writes: “Atlantic Canada governments face choices about how to govern. They can choose expansionary policies or contractionary (‘austerity’) policies.”

This rather supports Patrick Webber’s point. The entry of “austerity” as a meme of popular political lexicon is very much informed by the European experience since the Great Recession. It may well be, as Brennan writes, that Greece is an extreme case of austerity, not the archetypal one.

But that’s not how the public understands it, which is why Webber’s study is an important contribution. It is irresponsible for the proponents of ever-growing government to misrepresent all calls to limit spending as a campaign to replicate the conditions of Portugal, Ireland, Greece and Spain.

What we need is more moderate rhetoric, one that can consider the merits (or demerits) of more restrained government without the exaggeration and falsehood that this proposal is extreme. Throwing around words like austerity in the context of Atlantic Canada amounts to crying wolf.

Neither Patrick Webber nor AIMS can be fairly characterized as “Austerian.” Nowhere do we advocate that Atlantic governments should emulate the slash and burn ethic of Europe. Our upshot is that the provinces need to be more responsible with public funds now, so that the hard choices of austere conditions will not face them in the years ahead.

Editor’s Note: This blog entry is Part 3 in a series of four blog posts related to our recent paper “Measuring Austerity in Atlantic Canada” by Patrick Webber. Following misdirected comments and criticism of the study, we compiled this series to clarify misconceptions and to underscore its findings. Read part one here. Read part two here.