The Power and the Money

Make Canada Greater: What would change if New York joined Confederation?

I am reading “Divided We Fall” by David French. He may be the first thoroughly mainstream commentator to seriously posit that the American federation may break up under the weight of our political differences. Cheery reading for another happy election day, or not.

Even a mutual breakup of the United States would be a tragedy, but not because of American exceptionalism or any such thing. No, any collapse of a political union is a tragedy. It means that differing peoples could not share a fate or manage a common endeavor. It means shrinking horizons and cramped futures. Even when divorce is better than the realistic alternatives, it is still a tragedy. 

But there is one way that the American federation could break up and avoid such a tragedy! Instead of retreating into smaller polities, blue American states that wanted out (or were being thrown out) could replace one expansive continental dream with another. They could link their fate with their better-governed neighbors to the north!

Such a move would also be amazing validation of the Great White North—for Canadians to reject it would show a lack of confidence and a fear of dreaming big. Canadians should have confidence and dream big! (Yes, I thought Maximum Canada was a great read, why do you ask?)

One Canadian certainly has no fear of success: the Prime Minister invited American states to join as new provinces!

But enough with the blather. Let’s say something happened to crack the American federation. What would a switch entail in practical terms? In order to get my mind off the damn election (and grading exams) I decided to take a preposterous idea seriously. What would happen if New York State became the Province of New York?

The name

Well, first, NYS would not need to rename itself. Canadian law can handle a province that calls itself a “state” as easily as the U.S. constitution handles states that call themselves “commonwealths.” But let’s call the new jurisdiction “New York Province” anyway, just to make things easier.

Integrating the judicial systems

The biggest issue isn’t the one you’d think. (Although I’m getting there.) The biggest issue is that under current Canadian law, state criminal law will be replaced by the Canadian federal criminal code. The transition would be tough. State judicial elections would go out the window. I think you could continue to elect the Attorney General, but her authority would shrink considerably. You could probably continue to have elections for sheriff, but it would also be a departure from Canadian norms. The Canadians would also have to decide how much leeway to give New York in its civil codes. If they mandate that New York conform to the Canadian system, then civil courts will lose much of their power and many trials that were previously decided by juries will switch to judges.

Integrating the two systems would be a major headache for judges and lawyers. I have no idea how long it would take them to adapt. One year? Two? Ten? Canada would have to agree to long phase-in period during which the New York court system would be linked to Canada’s but not integrated into it. During this time every lawyer in New York State will have to effectively retrain. Law schools would also have to revamp their curricula.

Alternatively, the Canadians could work out an exception for the new province(s). Conceptually, such an exception would be relatively easy to implement and administer. (Australia and the United States do it and New York allows certain municipalities to create their own criminal offenses.) It would be a departure for Canada but it would not mean that the federal criminal code would cease to apply to New York. Rather, it would mean that New Yorkers were subject to two (or three) separate criminal codes, much as they are today.

Business ownership

In some industries, American companies operating in the state that weren’t locally owned would be required to pull out and sell their assets in that state to a Canadian company. (Canada would of course now include New York and any other states that made the switch.) These industries are pretty broad, including transportation, airlines, railways, shipping, publishing, financial services and telecommunications.

Telecoms and airways are pretty straightforward. U.S.-owned airlines would need to divest their operations for point-to-point flights between New York and other parts of Canada. Ditto, telecoms companies would need to sell or spin off their New York operations. Canada has been pretty liberal with allowing foreign ownership of transportation companies, so there shouldn’t be major problems for trucking or railroads. Some retail chains might want to spin off their New York operations, but that won’t be that difficult.

Some banks with equity of $8 billion or more and large demutualized insurance companies would need to be restructured. Canadian law requires that no person may own more than 20 percent of any class of voting shares or 30 percent of any class of non-voting shares. In addition, a majority of the board of directors and the CEO of every bank or federal insurance company would need to be Canadian residents.

Publishing is a weird one. Existing operations would only need to sell their operations to Canadian buyers if they intended to acquire an existing Canadian company. But it’s equally likely that you’d have big New York publishing houses would not qualify for Canadian subsidies or be able to acquire smaller Canadian competitors. It would probably get weird very quickly, but there shouldn’t be any constitutional problems. The Canadian government could continue to protect small Canadian operations against large New York-based Canadian operations. Of course, how long that would last once the New York representatives from the federal branch of the Working Families Party entered the Canadian parliament is a different question …

Unions

New York employers are going to be unpleasantly surprised. Most New Yorkers are going to love it. Of course, a lot depends on what the politicians in Albany do with their liberation from the strictures of American labor law.

Gun laws

There may be some disquiet in parts of upstate (as there is in rural Canada) but most New Yorkers are going to love this as well.

Fiscal federalism

Canada channels significantly fewer resources through its federal government than does the United States. Gross federal spending in New York (sans interest payments and direct purchases of goods and services) came to 13.2% of state GDP; the equivalent number for Ontario was only 10.9%. (The high level of direct purchases in Ontario is due to the fact that the federal government is based in Ottawa.)

Let’s take each category in turn. For retirement spending, the transition would be smooth. Canada could take over Social Security payments for existing retirees without much problem while transitioning younger workers into the Canada Pension Plan and Old Age Security.

For other transfers (not including medical care) the Canadian federation is about as generous as the United States, giving a bit more directly to individuals and a bit less to the governments of rich provinces like Ontario. (The whole thing is actually distorted by Alberta’s oil money, but let’s leave that for now.) On the margin, New York Province will receive a bit less non-health federal aid than New York State.

Federal spending and taxation as a % of jurisdictional GDP

	Retire-ment	Medical care	Revenue sharing	Individual transfers	Goods and services	Total spending	Gross federal taxation	Surplus to Feds
Ontario	5.1%	1.7%	1.8%	2.2%	4.0%	14.8%	(18.2%)	(3.4%)
NY State	4.6%	4.7%	2.5%	1.5%	1.4%	14.7%	(16.3%)	(1.6%)
NY Province	4.6%	1.1%	1.6%	2.2%	1.4%	10.9%	(18.2%)	(7.2%)

But health care … oh boy. A back-of-the-envelope calculation (using 2014 numbers, so at the beginning of Obamacare) shows that public and private entities in New York state spent about 8.4% of GDP on covered medical services. That’s more than most Canadian provinces, since health care is more expensive in the USA, but not prohibitively so: the Province of Ontario spent 7.1% of GDP in 2014.

New York is going to have a problem under the Canada Health Act. Medicare and Medicaid transfers from the U.S. federal government will dry up, and here (somewhat perversely) the United States is way more generous than the Canadian confederation. New York will lose Medicare and Medicaid money worth 4.7% of GDP. The Canadian Health Transfer (CHT) would come to only 1.1% under the current formula, blowing giant holes in the New York provincial budget. New York State currently spends about 2.0% on Medicaid, but adding the Canadian Health Transfer to that leaves a minimum budget hole of 5.3% of GDP (8.4% covered spending that will need to be made free – 2.0% existing spending – 1.1% CHT.)

And that figure of 5.3% is a minimum since Medicare and Medicaid are (again, perversely, I know) more generous than Canadian health care, even though they require co-pays. (More generous for the minority of people that they cover, that is.) You can’t tell seniors that they are going to be worse off now that they are Canadian, can you? That would be thoroughly un-Canadian!

New York Province could fill the hole with a VAT rate of 12% on top of existing sales taxes, or a tripling of state income taxes, or some combination thereof. That’s not an impossible thing. In this world where the U.S. peacefully divorces passing some version of Medicare-for-all should be popular. But it would be very expensive. Add to that the fact that the province would be passing upwards of 7% of GDP to Ottawa and becoming Canadian looks like a bad deal, even with all the benefits from being part of a big continental federation. 

Only there is here the outline of win-win deal for everyone involved, which is simply that New York Province is going to be a huge net payer into the Canadian federal budget.

The Canadian federal government could sign a Medicare Accession Grant Agreement (MAGA) with New York Province that would kick back, say, half the cost of establishing single-payer system. New York would get a federal tax point transfer worth 4.2% of GDP, and the Canadian taxpayers would still come out ahead with a net transfer of 3.0% of New York’s GDP. Win-win for everyone!

TLDR: Joining confederation would be a headache and New York would lose some fiscal revenue from the federal government. But if Ottawa is willing to be flexible it could be a win-win for everyone involved. 

I leave the effect on Canadian politics as an exercise for the readers ...

What would it take to get one billion Americans?

What would it take to get one billion Americans by 2100? Matt Yglesias does a good job of explaining why that would be a worthy cause in his book titled … well … One Billion Americans, but he doesn’t really say what it would take to get there. At best you can say that he proposes a bunch of policies that would be good in-and-of-themselves and will raise population growth on the margin. That’s pretty weak tea.

So what would it take? Well, here I’m going to focus on 2060 and 2100, since the Census Bureau projects out that far and I’m marginally likely to be alive, while my kids will be in their forties and (they better!) have kids of their own. According to the Census Bureau, the United States will have about 404 million people by 2060. The census projection then creeps upwards to 426 million by 2099 before starting to shrink.

The problem with that projection, as Lyman Stone will tell you, is that the Census is relying on outdated statistics. Both birthrates and net immigration have plummeted since they put together their estimates. I constructed a simple population model and plugged in actual Trump-era birthrates — i.e., 1.74 children per women instead of 1.89 and net migration of 0.6 million per year instead of 1.1 million. (I assumed the same improvement in mortality.) The result is a United States with only 362 million people in 2060. And that 2060 population will be falling, shrinking to 331 million by 2100 … a million fewer people than today.

So what could we do? Well, we could adopt Canada’s immigration policy. Using the net migration numbers for the “status quo” scenario put out by Canada’s Conference Board, American net immigration would rise to 2.7 million people by 2030. That’s about 4½ times the current number. Now, the current number has been pushed down by the Trump Administration, but immigration would still run about 2½ times the amount we averaged in 2000-16. (My calculations assume a ten-year phase-in period.)

But it would mean that the United States would accept a number close to all net migration into high income countries. According to the U.N., high income nations took in about 3.2 million people per year in 2015-20, down from a peak of 4.7 million per year in 2000-05. Now, I have no doubt that there is a lot of pent-up demand to emigrate held back by U.S. restrictions. But the United States is so big compared to Canada or Australia that it’s a real question whether we could attract this level of immigration over the next 80 years even if we wanted to. It is doubly unsure whether we could attract those numbers using the Canadian-style points system; we would almost certainly need to give bigger weight to other factors than Canada does or lower the cut-offs. 

And even that wouldn’t get us to 1 billion. Rather, the U.S. would hit 465 million in 2060 and 594 million in 2100. That’s a healthier population than you get under current policy, but it isn’t exactly the kind of dynamic growth that Yglesias (or I) would want to see.

To get to one billion by 2100 (or 570 million by 2060) you would also have to raise the total fertility rate (TFR) to 2.4 children per women. That is not a historically high number, but the only developed nation to maintain numbers that high is Israel. And even there, the number for secular Jews is only 2.2. At a TFR of 2.2, a Canadian immigration policy would get the USA to 534 million by 2060 and 851 million by 2100. A more realistic (but still hard!) TFR of 2.0 would get us 503 million by 2060 and 730 million by 2100.

But 730 million is not one billion.

I understand that hitting that target wasn’t Yglesias’s point. Rather, his point was twofold. (1) Here is a frame for a bunch of good policies! (2) Why the hell are most Americans afraid of aiming big anymore? For me, (2) is the salient point. We’re a technophilic nation, so it’s not that we’re afraid of change in general. What we’re afraid of is a certain kind of change, one involving big collective endeavors. We cower from building new cities, new roads, skyscrapers in our back yards, nuclear power plants, the Green New Deal. That’s a bad thing. We should stop. We will have a better future if we stop.

But sadly, absent some incredible rise in fertility or an unlikely drop in mortality, that better future won’t involve one billion Americans.

What if America had been unpopulated in 1492?

The long Twitter debate between Pseudoerasmus and Gabe Mathy was triggered by an essay in Jacobin by my friend and colleague Suresh Naidu. He wrote a piece about what North America would have been like had the native population avoided decimation from infectious disease.

As a piece of counterfactual history, the essay has problems. The first is that we really do not know the pre-contact population of North America. Using his assumption of 0.5% population growth thereafter, we get a range of 26 million to 234 million native Americans today. Needless to say, those are radically different scenarios. The second is that the presence of large-settled native populations would have changed the dynamics of later immigration; would as many Europeans have arrived if North America had 45 million people in it around 1800? Finally, it seems likely that a large native population would have derailed the development of the institutions that sustained rapid North American economic growth. 

But as a polemic, the essay is quite successful. The latter two arguments unambiguously strengthen Suresh’s overall point, which is that there was nothing inherent in English culture that insured that its settler colonies would become rich and democratic places. The presence of an exploitable settled population would have permanently derailed the American experiment. Pseudoerasmus and Mathy were debating whether the English would have created an apartheid scenario (Mathy) or something more like Mexico (Pseudoerasmus). Neither seemed to doubt that the resulting society would be more oppressive and less democratic than what really emerged in the northern United States and Canada. Nor does Randy McDonald in his discussion of the piece. 

The essay raises an interesting question, however. If larger native American populations would have prompted the creation of a more extractive and generally nastier North American state, potentially with multiple rounds of civil war, what would have happened if there had been no native Americans when the Europeans first arrived in 1492? What would have been different?

It turns out that James Axtell was there in 1987.

First and foremost, Spanish colonization changes completely. Without the great civilizations in the highlands of Mexico and Peru, the Spaniards take much longer to move inland. Without the Taíno in the Caribbean, it is entirely plausible (albeit unlikely) that the Spaniards give up on the whole enterprise. Still, somebody would eventually set up Caribbean and Brazilian plantations based on African slavery but Mexico and Peru will remain backwaters. Nobody settles in the Río de la Plata until the 19th century. (And I suspect that it will be British settlers who land there, claiming it from a moribund Spanish empire.) With no silver fleets there is no Sir Walter Raleigh and his tropical adventures. So no British Guyana, just a vague area where Venezuela meets Brazil. Ditto, there is no French empire in Canada. No fur trade, no New France. 

Second, when the British finally do settle the eastern seaboard, later than in our world, their expansion is slower and messier. There are no American domesticated food crops. There are no native American agricultural techniques to learn. And with no seasonal burning by the native Americans, the forests are that much harder to clear. There is no native American medicine. No snowshoes. No toboggans. No longhouses. No canoes. And idiotic English hunters crashing around in bright colors and scaring off the game. In short, the colonists will have to invent a lot of wheels for themselves that in our world they got from the Native Americans and that is going to slow initial settlement by a lot, decades at the very least, possibly a century.

New York and Pennsylvania in particular will develop more slowly; without the profits from the Indian trade, it will be much harder to raise capital for settlement. North America will be even more skewed to the slave south.

Third, no independence until well after 1776. Once the eastern settlements are finally established, expansion is going to rocket westwards with no Indians, French, or Spanish to slow it down. Slaves will get sucked into the south even faster, but there will also be more escaped slaves lighting out to form colonies in the interior. Axtell postulates, plausibly but without a whole lot of solid evidence, that absent the Indian threat American society would be a lot less religious and lose its “garrison mentality.” In his words:  “The jeremiads of New England would certainly have been less shrill in the absence of the Pequot War and King Philip’s War, when the hostile natives seemed to be ‘scourges’ sent by God to punish a sinful people. Without the military and psychological threat of Indians within and without New England’s borders, the colonial fear of limitless and unpredictable social behavior would have been reduced.”

With much more evidence, he also postulates that with no wars, there is no need for Britain to raise colonial revenues. Nor is there any reason for Britain to restrict westward expansion. That is probably enough to head off the Revolution. And if later revolts should occur, the colonists will have two huge problems. First, they will be more separated from any martial habits. No militias, no real combat experience, just a vasty totalitarian infrastructure of slave catchers. Second, they will have no Indian opponents from which to learn guerrilla tactics. 

So by 1850 you have a British slave empire that sprawls over the entire continent, well into northern Mexico. (Who knows? Maybe it will British Americans heading south who discover the mines in Zacatecas and exploit them with slave labor.) The northern reaches will not have slavery, for the same reasons as in our world, but they may be less religious and less moralistic, more crassly commercial and more dominated by large landowners. 

You have a Caribbean and a Brazil that do not look entirely unlike our own ... but which have less European settlement. (With no natives to conquer and no native women to marry, Iberian migration will be slowed.) You have growing slave populations around the Mexican lowlands, parts of Central America, and possibly parts of the Peruvian coast ... but I would venture not much in the latter. There is no Panama Real or Camino de Cruces across Panama; those routes, primitive as they were, were constructed by native American slaves captured from Nicaragua.

American silver was less important to sustaining Spanish imperialism in Europe than many realize, but there will be no Price Revolution or Columbian Exchange ... and that will change Europe in unpredictable ways. 

But in America, well, things look ugly. If a Revolution does come, it looks likely to take the form of a Treasonous Slaveowner’s Rebellion against the Crown, but that assumes that a British government unexposed to the shock of the American Revolution will be as open to the movement of public opinion as our own. This British crown might not take any serious moves against the horror, and thus provoke no rebellion. The strain of New England moralism that produced abolitionism in our world might be weaker, or not there at all. 

What is the cost of an independent Canada?

In the last post, I discussed Canada’s mysterious productivity gap with the United States. It appears to have been rather long-lasting. The current explanation is that the gap derives the fact that Canada is a smaller market and firms therefore have trouble reaching the optimal size and specialization. The implication is that had Canada been part of the United States, it would be more productive today. 

But does the gap really exist? Might the whole post be based on a misconception?

Vincent Geloso suggested that the gap may be driven by Quebec, but that does not match the data. The income gap with the U.S. holds for Ontario back to the 1870s. Moreover, we have detailed firm-level data for 1871 which shows that Ontarian firms were about 3-5% less productive than their Michigan equivalents. That is not to say that Quebec wasn’t a laggard! It is to say that the gap, inasmuch as it exists, is not due to backwardness in Quebec or the Maritimes. 

Randy McDonald, however, suggested that we might be asking the wrong question. Maybe the question shouldn’t be “Why are Canadian firms less productive than American firms?” but rather “Are Ontarian firms less productive than firms in the Great Lakes states?”

After all, were Canada part of the United States, then modern Ontario would be the State of West Canada with a northern border somewhere between Lake Nipissing and the Albany River. West Canada would be just another Great Lakes state. If real genuine Ontario has been consistently less productive than the Great Lakes states, then we can conclude that there is some Canadian factor holding firms back. But if it is not, then we might want to doubt the entire premise.  

It is easy enough to get regional GDP per capita for 1997-2016. Now, GDP per capita is a highly imperfect proxy for productivity. It does not account for differences in age structure, labor force participation, or work hours. But it is what I have. The data for the U.S. comes from the BLS. The Ontarian data is converted to U.S. dollars using the OECD PPP exchange rate. 

And so:

Wow! Ontario was ahead of the Great Lakes states in the late 1990s, falling behind only after 2003. It fell behind Michigan only in 2010. This makes me wish for a longer time series. Is 1997 or 2016 the aberration? Has Ontario basically looked like a Great Lakes state since 1871? There is a paper for an enterprising graduate student here. 

In fact, there are two different axes upon which to compare real Ontario with counterfactual West Canada. The intensive axis is productivity. Would workers and firms be more productive in Ontario had they enjoyed the same access to the American market as firms in the Great Lakes states? Did the value of being American, if any, change over time? The question is interesting in-and-of itself, but it also might shed light on the putative benefits of European union.

But there is an extensive axis as well! Before 1879, the problem with being Canadian was that the United States imposed high tariffs on Canadian exports. After 1879, however, the National Policy also imposed very high tariffs on American and British exports to Canada. Canadian firms still lacked access to American markets but they no longer had to worry about American (or British) competition.

If the policy worked, then firms would be created in Canada that otherwise might not have existed. Those firms would require workers. Where would those workers come from? They could come from farms, but the Canadian farm sector was still growing fast. They could come from existing firms, but that would raise wages. In an age of open immigration, high wages should have attracted more immigrants. As the industrial heart of Canada, Ontario should have had more firms and more people than it would have had it been West Canada, just another Great Lakes state. (If I had to guess, I would imagine that Wisconsin might be the best parallel for counterfactual West Canada, despite its closer proximity to Michigan.) 

But did the National Policy work as advertised? And if so, how much bigger is Canada’s population? And what were its costs and benefits relative to (1) the reality of American and Canadian protection; (2) a counterfactual of American protection and Canadian openness (i.e., no National Policy); (3) a counterfactual of American and Canadian openness (i.e., annexation or a North American customs union); and (4) a counterfactual of American protectionism but Canadian openness only to Britain (i.e., some sort imperial federation)?

If anyone knows of a literature, please point me to it! And if there is not a literature, then somebody should get on it! Economic history, like most things, needs more Canadian content.

Three worthwhile Canadian puzzles

So, to continue with my recent interest in Canadiana, impelled by, well, being in Canada!

There is an interesting puzzle about Canadian economic development. Well, there are many many interesting puzzles, but what particularly grabs my attention at this moment is why Canadian productivity has persistently lagged the United States.

Below I show Canadian total factor productivity (TFP) as a percentage of American TFP between 1950 and 2014. Save for a few halcyon years in 1973-80, Canada has consistently lagged the United States. Moreover, the gap turned into a chasm in the 1980s and grew even larger after the Great Recession. 

The productivity gap predates WW2. After World War 2, Canada lagged the United States in total factor productivity. That is to say, a Canadian worker in the same industry with the same skills and working on the same machinery produced less than her American equivalent. In the early 20th century, the superficial gap was just as large: the average Canadian worker added only 81% as much value per hour as his counterpart south of the border.* (Table 6 on page 25.**) Canadian workers, however, used rather less machinery than their American counterparts, so TFP closed to about 94% of the U.S. level ... remarkably similar to the gap in 1950-67.

In fact, the gap widens if you go further back. In 1900, GDP per capita (the crudest measure) in Canada ranked only 80% of the United States. In 1870, it was 70%. Canada appears to have had more-or-less that income gap with the United States back to 1820. 

Heck, the gap goes back to even before the existence of either the United States or Canada! Vincent Geloso (Texas Tech) has a paper comparing 18th-century Quebec with New England and finds that living standards were about 31% lower in what eventually became Canada. (Remember, there was no settled European population in modern Ontario back then.) 

So what caused the gap? A seminal 1964 paper by H.E. English pinned the gap on American protectionism: Canadian businesses operated at too a small scale and tried to produce too wide a variety of products. In other words, Canada wasn’t big enough. (You can find a 1980 study making the same argument here.)

This seems plausible. And as theories go, it has the advantage of explaining why the United States has enjoyed such a lead for so long over so many places. Everywhere else is too small! There are just too many damn countries in the world. Those of you who have read my opinions about  secessionism will know that I would find this a very gratifying conclusion.  

But the scale explanation does not seem to fit with the big widening of the gap since free trade.

Or does it? It is true that trade costs between the U.S. and Canada are still pretty high. And it is true that interprovincial trade barriers place even bigger obstacles on Canadian firms than American protectionism.  And it is true that the returns to scale in Canadian businesses are pretty high. (Page 130 of the 2009 World Development Report.) Canada has lots of small firms compared to America (consistent with the scale economy argument) and those small firms tend to be less productive than their American counterparts (sort of maybe could-be consistent with the scale economy argument). 

Statistics Canada ran an interesting thought experiment to test the hypothesis. They found that if you altered the size mix of Canadian firms to look like American ones you would close the productivity gap by 5 percentage points while if you made Canadian small firms as productive as American ones you would close it by nine. (Table 6, counterfactuals one and two.) Fixing both effects would close two-thirds of the gap, call it 16 points.

But that is not the entire gap. In fact, it leaves an unexplained gap bigger than the total gap in the 1950s.

Or the 1870s, for that matter. Kris Inwood (University of Guelph) and Ian Keay (Queen's University) conducted a similar exercise for Canada in 1870. They could get Canadian TFP to rise from 93% of the U.S. level to 97%, which cuts most of the gap. (You can find an outline of their paper here; the main one is paywalled.) Strangely, they downplay their finding, which seems like a very Canadian thing to do. The punchline is not that a gap remained, the punchline is that they explained more than half of it!

So the fact that Canada had a protected small market explains a little more than half the 19th century gap and about two-thirds of the modern one. But that still leaves two puzzles. First, what explains the rest of the gap in both periods? And second, why has the gap grown so much larger recently, despite NAFTA and all the ways modern communications should make service exports easier?

It is a great pair of questions.

But I mentioned three in the title, no? What’s the third puzzle?

I will post on that later, but it’s even weirder than the productivity gap ... it’s that median incomes in Canada may have finally pulled even with the United States. That is to say, for the first time ever it matters not to most Canadians that they live in a fundamentally less-efficient economy than their southern neighbors. And that’s the biggest puzzle of all.  

* The gender shift is deliberate.

** John Baldwin and Alan Green, “The Productivity Differential Between the Canadian and U.S. Manufacturing Sectors: A Perspective Drawn from the Early 20th Century,” The Canadian Productivity Review (Statistics Canada: December 2008).

How Canada stopped being British

Montreal is a fascinating place. And so, in honor of being here, a few random Canadian posts.

You may be aware of the recent Australian citizenship kerfuffle. Basically, the Australian constitution prevents anyone with double-citizenship from holding public office. The exact phrase is, “Is under any acknowledgement of allegiance, obedience, or adherence to a foreign power, or is a subject or a citizen or entitled to the rights or privileges of a subject or citizen of a foreign power.”

That is a little weird. As is the fact that the Australian high court held that it was enough to be eligible for foreign citizenship. Weirder still is that people appear to have only recently realized that this clause exists, and so a number of politicians have had to resign.

But what really struck me was the identity of three of the four “foreign powers” causing the trouble: New Zealand, Canada, and Britain. (Plus Italy.) None of these were foreign in 1901, when the Australian constitution was written. Anyone born in Canada, Australia, New Zealand, South Africa, or Newfoundland was a natural-born British subject. (The link goes to the British Nationality Act of 1914, versions of which also passed in all the Dominions.)

Today, though, Australian law treats all the former dominions (including Ireland, which was grandfathered in at independence) as completely foreign countries. Since 1984, Commonwealth citizens have had no benefits in Australia, although they are still allowed to vote if they arrived before that year. In Canada, Commonwealth citizenship also confers no benefits of which I am aware. In the U.K. itself, there are a few.

So, in honor of the fact that I am in Montreal, when did Canadians stop being British? Well, the short answer is 1946, when Canada passed the Citizenship Act. Except that is not quite right! The separation started earlier and took longer to complete.

The Canadian government first limited the right of Britons to settle in Canada in 1910, under the Canadian Immigration Act of 1910. The act allowed the government to deport immigrants who were “unsuited to the climate or requirements of Canada” or who had traveled courtesy of a charitable organization. The first requirement was laser-aimed at black Americans; the second at poor Britons. The act introduced the phrase  “Canadian citizen” which included “a British subject who has Canadian domicile” but which also made it clear that such domicile was not automatic. 

Ironically, the Canadian attempt to discourage Britons from emigrating flipped to encouragement after WW1, when the Empire Settlement Act of 1922 authorized Parliament to spend up to £3 million per year, the equivalent of roughly C$167 million today. Canada wanted Britons, you see, but only the right sort of Briton. 

In 1921, the Canadian Nationals Act defined Canadian nationals as British subjects who were born in Canada or who legally resided in Canada for more than five years. Weirdly, anyone naturalized in Canada would become British subject able to freely move to Britain, but being a British subject did not mean that you automatically had the right to move to Canada. 

So there was a de facto Canadian citizenship in place well before 1946.

Moreover, the special place of British subjects did not disappear after 1946. British subjects could still vote in Canadian elections after only one year of legal residency. In fact, British subjects Commonwealth citizens didn’t lose the right to vote in federal elections until the Canada Elections Act of 1970; even then, they could vote in provincial elections in B.C. and Ontario until 1985, New Brunswick until 1999, and Nova Scotia until 2006. (See pages 12-13.*) 

The slow distancing of Canada from the United Kingdom seems to have been an entirely unplanned thing. I would have thought that Québécois opinion had a lot to do with that, but I would be wrong. London just kept handing off autonomy to its North American colonies bit by bit. Each bit of devolution became harder to reverse. Moreover, London refused to graft any institutional meat onto the rotting bones of its Empire, forestalling any chance that the Commonwealth might turn itself into something like NATO or the E.U. or even a glorified free trade zone.

My current hypothesis is that the key decision was to grant the Dominions the right to set trade policy. Once they had that, they had interest groups that would refuse to reverse integration in that key sector. Add to that a very understandable reluctance to get the colonies to contribute towards their own defense and you had nothing but straight decline into irrelevance. In other words, socialist beer destroyed the British Empire.

Still, it is sort of amazing just how weak the links have become between the U.K. and its settler colonies, the ones that didn’t fight a war of independence.

* Willem Maas, “Access to Electoral Rights Canada,” Access to Electoral Rights Report RSCAS/EUDO-CIT-ER 2015/9 (July 2015). 

Not Trinidad, but schadenfreude

More Trini posts coming. But right now, behold the failure of the Calexit nonsense.

And as California resident (but not native, as he will angrily point out) Will Baird (hat tip!) pointed out, you cannot help but relish the way the organizers’ obvious ties to Moscow brought the whole thing down. I don’t blame the Russian government: why not throw a hail Mary against an apparently-vulnerable opponent? But this was all too stupid for words on the part of anyone who took it seriously.

As opposed to transferring membership from the United States to the Dominion (:p) of Canada. That, well, that does not involve the creation of any new countries, to which I am opposed, and that I could get behind. It’d be more like annexing Canada than joining it, anyway. The entire northeast could follow, and what would there be to not like? Although I would be sad should New York and Pennsylvania wind up in different countries.

(Says the man who joined the U.S. Army out in order to be a human hostage to U.S. foreign policy, as then-2LT JKR pointed out in far pithier language.)

Worthwhile Euro-Canadian initiative: globalization can be progressive

In April of 2016, I posted about a European initiative to reform investment tribunals. I thought it an excellent idea. The idea would be to make the tribunals more like real honest-to-goodness courts, with due process and precedent and all.

Well, now that proposal is enshrined in law in the new European trade deals with Canada and Vietnam. Better still, the Canadians and Europeans are looking to broaden the system, inviting even more countries to participate. It is refreshing on two counts. First, cooperation in this world of increasing deglobalization. Second, it is a progressive multilateral institution, one which might make the world a marginally fairer place.

Nice.

The border tax and climate change

I am opposed to a 20% tariff aimed at Mexican manufactured goods. I am more ambivalent about the 20% border adjustment tax (BAT) floated by the Trump administration. In fact, I may support it. 

The basic idea is simple. U.S. companies would pay a 20% income tax. Companies could deduct domestically-sourced inputs from their income but not imported goods or services. Those imports would then, in effect, have to be at least 20% cheaper than equivalent domestic competitors. 

The idea is to make the U.S. corporate income tax look like a value-added tax (VAT). If a corporation in Mexico buys an input from overseas, it pays the Mexican VAT on the purchase. If it sells something domestically, then it also pays the Mexican VAT. But if it sells something to a company in France, then it does not pay the Mexican VAT ... but the French buyer will pay the French VAT. Under the BAT, if a corporation in the U.S. buys an input from overseas, then it pays the U.S. BAT on the purchase. Ditto it pays the BAT on all earnings from domestic sales. But if it sells something to a French buyer, then it will not pay the U.S. BAT ... but the French buyer will pay the French VAT.  

As it stands, the BAT will apply to oil imports. So an American refinery that buys foreign crude would have to pay the 20% BAT on those purchases! Right now, WTI trades around $54 per barrel. A refinery using American crude would pay $54; a refinery using imported crudes at a similar grade would pay $65. American oil prices would rise, world oil prices would fall.

And that is good for the world! Higher U.S. oil prices mean less U.S. oil consumption. Moreover, the burden will fall particularly on dirtier forms of oil. Most American crude oil imports (60% in 2015) are heavy grades. Almost half of that consists of heavy crudes from Canada, which  release about significantly more carbon during the production process than other grades of oil. (So much so that the Section 526 of the Energy Security Act of 2007 theoretically banned U.S. federal agencies from purchasing it, although that has had no concrete effect.)

Lower world prices will, of course, stimulate more world consumption. But there are two wrinkles that will reduce that impact. First, transport links lock in most Canadian output to American markets. Last year, the Trudeau government approved an expansion of the Trans-Mountain pipeline from 300,000 to 890,000 bpd, which would allow Canada to divert as much as 28% of its current U.S.-bound exports to other markets. But that will take a long time and is a drop in the bucket of world production. Second, American refineries are optimized to use heavy crudes. They will switch away, but slowly, even if the cost of their primary input rises. Finally, inasmuch as world prices do fall, that will discourage foreign exploration and development, keeping some carbon in the ground for the long-run. 

Winners:

1. Our children;
2. American heavy oil plays, of which there are not many outside Alaska;
3. American light tight oil plays (hooray!);
4. Andrés Manuel López Obrador (see below).

Losers:

1. American oil consumers, who will likely see prices rise about 30₵ per gallon;
2. Refiners who use imported crude oil—although not by very much;
3. Canadian, Ecuadorean, Venezuelan and Mexican heavy oil producers, who are locked into the U.S. market;
4. Mexican consumers, who rely on gasoline produced in the United States from Mexican heavy crude.

As far as energy is concerned, this does not strike me as a bad policy, even if it will impact Mexico quite seriously. At 2015 prices, a 20% BAT would have raised about $2.0 billion from Mexican crude oil imports, although most of that burden would fall on American consumers. The real hit for Mexico is that the increase in U.S. gasoline prices will be passed on to either Mexican consumers or the Mexican government. Inasmuch as the Peña administration hands Mexican voters a second gasolinazo, then it will be another fillip for AMLO’s chances in the 2018 elections.

So a good policy for energy: a net plus for domestic production and a net plus for decarbonization. Probably pretty good Harley-Davidson, as well.

But as far as other products markets are concerned, I’m still undecided as to whether the BAT is a good idea. Thoughts?

Worthwhile Canadian initiative rejected!

So the Trudeau government just gave supporters their first big disappointment: no election reform in this parliament. The stated reason is twofold. First, the Liberals feared that proportional representation might lead to the rise of fringe alt-right parties. Second, the government worried that a referendum decided by a simple majority would set a worrisome precedent for future secessionists, while a referendum with a bigger threshold would be impossible to win.

Neither objection is convincing. First, the Liberals could have gone for an Australian-style preferential voting system, which disadvantages small parties. Second, they could have designed a P.R. system to prevent small parties. (Either via a minimum threshold or holding elections in multi-member districts with only four or five representatives.) Finally, they could have gone with the higher referendum threshold with a clear statement that Canadians were voting only on the reform and that the government would not resign in the advent of a defeat. 

So what is the real reason? Well, the real reason is that the Liberals managed to turn 40% of the popular vote into 54% of the seats. That seems to have killed the desire for reform. But they are making a big mistake.

The below figure graphs Canadian vote shares since the turn of the last century. The parties are ordered (roughly) from most conservative at the top to most liberal at the bottom. The Bloc Québécois is much more left than the New Democrats, but due to their unique nature I have put them in the middle.*

And what does the figure show? Well, since 1945 the Conservative Party has been in power for 27 years but conservative parties only won a majority twice: 1958 and 1984. 

Proportional representation or preference ballots might be bad for the Liberal Party. They are unlikely to be bad for liberalism. To all extents and purpose, the New Democrats and the Greens are just slightly more left-wing versions of the Liberals. (See here if you do not believe me.) 

In other words, abandoning electoral reform seems like a very shortsighted move on the part of the Liberals. Is there something I am missing?

* Yes, I am aware that there is at least one Canadian reader out there prepared to be pedantic. Therefore, to clarify: I know that the New Democrats were called the Co-operative Commonwealth Federation before 1958, Social Credit ran under the name “New Democracy” in 1940 and split into two parties for the ‘65 and ‘68 elections, Conservatives were Progressive between 1942 and 2003, and the Reform Party was CRAP in 2000.

Escapism: A 19th-Century science fiction novel and a 21st-Century science fiction TV series

 First, this is the weirdest thing that I have ever read. It’s a science fiction novel from 1889. It’s badly-written. (I mean, it’s badly-written for 1889. For comparison, A Connecticut Yankee in King Arthur’s Court was published around the same time.) The technological extrapolations are weird and wrong and barely affect the plot, which concerns bizarre machinations around the succession to the British Empire and some weird-ass scheme where the President of the United States is trying to marry off her daughter to the Emperor. It ends with Canada beating the U.S. in a war.

Anyway. Why did I read it? Well, besides insomnia most of the major characters are women, and women who were not trying to impress a man. That is pathetically rare, even today, let alone 1889. Plus the author went out of his way to point out all the awesome people in the book who just also happened to be Jewish. For something so old-fashioned, it was also strikingly modern.

Second, I finished watching Occupied on Netflix. I recommend it! The main scenario is improbable, but slightly significantly less so than before November 8th. An energy-independent U.S. has pulled out of NATO and established a valued relationship with the Russian Federation. In the midst of a massive surge in energy prices prompted by wars in the Middle East, a Green government in Norway decides to shut down the country’s oil and gas production in order to combat climate change. Panicky Europeans green-light a Russian seizure of the Norwegian fields to restart production. The Norwegian prime minister reluctantly allows this in order to avoid a war, but his county finds itself entrapped in a slow-motion conquest as the Russians slowly assume more-and-more authority. 

It is quite well done. My only quibble? Well, whoever plays the American ambassador to Norway has a Canadian accent. You know, with that weird caught=cot sound you can hear from Justin Trudeau. Given that a pretty massive plurality of Canadians don’t have a recognizable Canadian accent, it’s an impressive bit of miscasting. (If somebody finds out that the actor who plays the ambassador is actually from Massachusetts, I will be embarrassed.)

The accent screw-up is all the more inexplicable considering how good British and Australian actors have gotten at mimicking spot-on American accents, even American regional accents.

But not Russell Crowe. See minute 1:12 in this clip from an otherwise great movie. Points to the person who guesses the word he screws up in the context of getting everything else right. The mess-up is all the more pronounced considering as he is in a scene with Denzel Washington, who has a perfect New York accent considering as that is how he naturally talks.

Actually, a television show about a Russian occupation of Norway might not be all that escapist these days, considering. 

The U.S. would not have had a better constitution without the Revolution

Dylan Matthews’ third point in his screed about why the American Revolution was a mistake is that without the Revolution, we would have had a Westminster-style parliamentary government, and parliamentary governments are better.

I grant the point about parliamentary government. The U.S. constitution is a mess, at least as a governing document. It sets up multiple veto points and is quite unsuited to disciplined, ideological parties. The Canadian constitution, as it currently stands, works quite a lot better.

But the United States would not get the current Canadian constitution if we had not fought the Revolution.

Consider the Canadian constitution as it stood in 1867. It possessed this giant monstrosity called the Senate: an appointed chamber deliberately set up to represent the regions and throw sand into the legislative gears. And the Senate did just that! Occasionally, it rejected major reforms: in 1926, for example, the Senate axed Canada’s first attempt at a social security system. 

The Canadian senate, however, soon became remarkably deferential to the lower house. (For example, the failed 1926 social security bill sailed through unchanged the next year.) That is in part because the Prime Minister can appoint more senators, but mostly it is because the institution does not have the legitimacy to use its de jure powers to the fullest. It is not quite the House of Lords, but it’s close.

Now imagine designing a constitution for a British North America that includes a bunch of slaveholding states provinces. One might imagine that you would get an institution rather like the Canadian senate. But does anyone believe that politicians from the slave states provinces would hesitate to use every power at their disposal to protect their control? The end result would be an upper house that would be even more of a dog’s breakfast than our own.

And that assumes that you even get a united British North America without the Revolution! I will admit, it seems likely that the British colonies would eventually federate. But I mostly think that because Canada, Australia and South Africa eventually did federate, even if New Zealand and Rhodesia kept out of the latter two. Blind analogy is probably not a good reason to assume that British North America would go the same way.

Having North America divided into ... uh .... somewhere between 13 and 16 different autonomous entities under the British crown is not a recipe for good government. Give me the Senate instead of balkanization! Hell, give me the even messier constitutional wreck that is the European Union. 

In other words, claiming that North America would have had a better constitution absent the Revolution is ahistorical smoke blowing. Wasn’t gonna happen. 

Another modest proposal

 This blog is already on record supporting the accession of Jamaica to the United Kingdom in lieu of reparations for slavery. Sadly, that does not seem to be in the cards.

But should the United Kingdom decide to secede from the European Union, then an obvious opportunity presents itself: once Scotland goes its merry way, join Canada! No worries about American gun laws or presidentialism, surely the NHS can be integrated into the Canada Health Act. The Act, in fact, already allows provinces to opt out, although doing so would place an undue burden on the taxpayers of the provinces of England, Wales and Northern Ireland. (Call them the PEWNI, pronounced as spelled.)

Someone should calculate the fiscal burdens! I am not sure what they would be, but a back-of-the-envelop calculation should be pretty easy. First, figure out what teh PEWNI would pay into the federal fisc. Then assume it cuts provincial taxes by the same amount. Use that figure to calculate the transfer payments it would be due under equalization and add an estimate of its social and health transfer receipts. (Canadian federalism is so simple compared to its American counterpart!) Voila!

For additional benefit, calculate savings from economies of scale. I mean, come on, you could generate massive savings from combining the two militaries alone! 

Now think of the benefits for the PEWNI! First, your home market just grew by 36 million people! Yes, that is a lot less than the population of the European Union, but the economic union will be a lot closer. Second, you are now in NAFTA! No new negotiations, no wrestling with Congress, just poof, you’re in. , Third, you get into the Canada-E.U. trade agreement, also with no need to negotiate. Finally, you get to keep your own flags and adopt a very cool national banner! 

But won’t the English take over the Canadian Confederation? They will have more than half the population of the expanded country!

As it turns out, no. The drafters of the Canadian constitution were wise. First, no province can have fewer MPs than it has senators. Second, no province can have fewer seats than it had in 1985. Third, no province can lose more than 15% of its seats in any given redistribution. Add those together, and the Province of England will have only 36% of the seats in an expanded 543-seat House of Commons, no more than Ontario has today! 

Obviously, England will get 24 senators, same as Quebec. Or less. What the hell. Less.

So all good! England, you should jump at this.

As for Canada, well, there are myriad multiple many benefits. Since those benefits are so obvious, I am sure that readers will be happy to list them in the very long comment thread that I expect to follow.

Bueller?

Two of these places are not like the others

 So the intrepid data team at the Economist collated all internet mentions of the term “51st state” and came up with the following map:

Don’t ask me to explain the references to existing states. But for most of the foreign countries, I get it. Australia, Britain, Japan, very close treaty allies. Canada and Mexico, in NAFTA. (Canada’s also a very close treaty ally.) Taiwan, special relationship. Caribbean, Philippines, Ireland, lots of emigrants to the U.S. (Bora Bora and Brunei, that’s just weird, but whatever.) 

In fact, I’m surprised that more Latin American countries didn’t crack the top ten: Colombia, El Salvador and Panama have a right to feel slighted. 

But what are Russia and North Korea doing on this list?? Who refers to them as America’s 51st state? And why?

Fear of a Black Canada, part 2

 I am working on a research project with that title. Genesis can be found here. And a (not particularly deep) look at the topic (that misses the most interesting parts) just appeared here.

The second link discusses, of course, Americans thinking about moving to Canada if the Donald wins the upcoming election. No one will, of course. But that didn’t stop people at a San Diego airport bar from talking about it on Saturday afternoon. (I was on my way back from a conference.)

The bartender said that his wife wanted them to move to Canada, so he proposed northern Washington as “almost Canada.” He was joking (I think, his delivery was drier than the surface of Mars) but the nice white Texans from Austin to my left and right were not. (My flight home went through Dallas.) Well, their tone was not joking. The substance, not as much. One woman had a son at U.T. and a daughter starting her first job in Houston; I have trouble imagining her packing up for Canada. A young man had a daughter of his own on the way and a good job as an animal trainer. Maybe that is the sort of career where you can just pack up and jump international borders ... but I have some doubts. A third Texan, to my right, could have been Californian: his affect was totally SoCal bro. But he was studying petroleum engineering. And while Alberta isn’t quite in free-fall, Texas is doing rather better. 

I really wish liberals would stop it with the whole  “I’m to moving to Canada” schtick. It’s only slightly less annoying than the conservative “time to secede from the Union” crap. 

Although, really, it is weird that there are any labor market restrictions between the U.S. and Canada at all, no? 

When Britain took back Newfoundland

 Lot of traffic from Facebook looking for socialist beer and the British Empire. Weird. 

This post is a brief comment on a weird episode in North American history. Basically, the Dominion of Newfoundland went bankrupt at the beginning of the Great Depression. The U.K. sent over an investigatory commission (its full report is here) which bizarrely ignored the fact that the country was, you know, hit badly by the Depression. Unsurprisingly, it recommended against default, since no part of the British Empire had ever defaulted. But it also recognized that Newfoundland could not pay. So it recommended that British taxpayers should assume future deficits ... in return for which the Dominion of Newfoundland would suspend democracy by putting the Governor (for some reason there was no “General” after Governor in the Dominion of Newfoundland) and a six-person Commission in charge of the country.

I managed to cobble together some statistics from various sources. (The link goes to the main one.) Looks like the Commission managed to reform bloody little.

First, British aid essentially matched Newfoundland’s interest payments: $20 million in aid against $21 million in interest. That was not a coincidence. Basically, Newfoundland ran at a primary surplus, just as it would have done had the country just up and defaulted. 

Second, the territory’s finances began to recover in 1935. (Page 390.) It would be nice to think that this was due to putting steely-eyed incorruptible Britons in charge of the financial system. Instead it seems to have come almost entirely due to an increase in customs revenue ... less than the increase in trade. Customs revenue went up 32% because imports went up 74%. That is, the economy recovered and so did revenues.

And what drove the economic recovery? Well, iron exports started to increase in 1935 and skyrocketed in 1937 ... driven by exports to Germany. Oh boy. More seriously, Newfoundland’s exports recovered because of  the U.S. devaluation in 1933-34. (Newfoundland used the dollar pegged one-to-one to the U.S. dollar; see comments.) The dollar plunged from £0.28 when Roosevelt took office in March 1933 to £0.20 when it finally settled down at the beginning of 1935. 

Third, public services did not really get better. Infant mortality skyrocketed from 106 per 1,000 in 1933 to 123 by 1937, before suddenly (and weirdly) plunging to 93 in 1938 and then rising back . (Page 258; it was 40 in the United States.) School enrollment went up a bit, from 67% in 1933 to 69% by 1940. (Page 67.) I think it would be unfair to blame the Commission for the first but also find it hard to credit them for the second. Would a self-governing country have done worse?

In short, the episode seems bizarre and pointless. I can understand why Newfoundland might have preferred British aid to default. And I can understand why Britain did want a Dominion to default and go off with its own unilateral devaluation. But the Newfoundland government had to spend as if it had defaulted and recovery happened because the United States devalued. And having British bureaucrats take over the government appears to have accomplished little. So as a lesson in the merits of modern-day imperialism, it is not.

Any implications for the European Union are left as an exercise for the reader.

Randy McDonald finds sanity

 Too bad about the result (Randy had me rooting for Toronto as well, despite my fondness for K.C.’s unorthodox manager) but excellent that my old friend has finally seen the light. Mayhis newfound fandom it continue into the 2016 regular season!

Here I am in the Rogers Center in 2005. I was not rooting for the Jays. Sadly, Randy, what with the Nats now being my second-favorite team, we shall now be on opposite sides forever. 

Anyway, I will now find myself rooting for the Mets in a World Series for the first time since 1986. Perhaps I shall dig up some embarrassing photos from 1993 of me in a Mets hat. Or perhaps not. Some things from the pre-Internet days are best forgotten.

Emerging market Keynesianism revisited

 Today Paul Krugman pointed out that Brazilian monetary policy is hamstrung in a way that Canadian policy is not. Canada can keep interest rates at rock-bottom in the face of falling commodity prices. Brazil can’t. Extensive foreign-currency borrowing by private entities means that a falling real would push Brazilian borrowers into insolvency. Cutting interest rates in Brazil as much as in Canada, however, would cause the real to plummet as investors took flight. So Brazil can’t cut as much as Canada. 

I would just like to point out that Brazilian fiscal policy is similarly hamstrung. Canada can (rightfully!) go on a borrowing spree with no ill-effect. Even if it doesn’t prompt a recovery (and I think it will) it will leave Canada with badly-needed shiny new roads and trains. But if Brazil tried the same, investors would run for the hills, causing the real to fall and forcing the central bank to raise interest rates or watch an ugly combination of insolvent companies and soaring inflation make the economy worse.

We mentioned that problem on this blog back in 2008. 

(By the way, the conservative government did a pretty good job with countercyclical fiscal policy. Take that, James Nicoll, you hippie.)

Bad Canadian coverage

 Earlier I praised the New York Times; now I bury it.

It should not be a shocker that U.S. coverage of Canadian affairs is pretty bad, but this one takes the cake. New York Times headline from today, page 12:  “Most Noticeable Change Under Trudeau Could Be Abrupt Shift in Tone.” Most of the tone-shifting the article discussed had to do with the tone inside Canada (or between Canada and countries not called the United States) so the piece was not a bit of American navel-gazing.

OK, fine. But what does the article say in paragraph 2?

“Mr. Trudeau has promised some major policy changes, among them legalizing marijuana, dropping out of the American-led bombing campaign against the Islamic State and deficit financing to pump up the economy and rebuild infrastructure.” 

Given that Mr. Trudeau has an outright majority in the lower house, these things are likely to happen. (Canada’s senate, thank the Lord, is not like the American one.) 

So let me say that, no, the tone is not going to be the most noticeable change under Trudeau. For crying out loud.

This was Politico-level bad.

Duverger’s law passed in Canada!

 Tonight, Victor Menaldo sleeps happy in Seattle. Not because he cares who won the Canadian election. Victor is from Queens and lives in Washington State; he is not entirely clear that Canada is a country. No, Victor sleeps happy because Canadian voters, in their infinite wisdom, upheld Duverger’s law, which is, in the words of Prof. Menaldo, the “one insightful rule” that political science has given to the world.

To recap, Duverger’s law states that democracies that vote by geographical district where the biggest vote-getter wins will have two-party systems. The reason is that voters won’t want to waste their votes on no-hopers, so third parties will struggle. If, for example, voters really hate one particular party, then they will vote for whatever second party looks most likely to defeat the hated one. They won’t want to risk having the evil ones win by wasting their vote on a no-hoper party, even if that party most closely fits their preferences.

And that is what seems to have happened in Canada! Defying the polls, left-leaning Canadians did not split their votes between the Liberals and the New Democrats. Rather, they broke Liberal at the last minute, handing an outright majority to that party. 

So now my friend Victor can sleep easy, knowing the Duverger has regained ground in England and seems to have proven itself in Canada. As a political scientist, his job is secure. 

At least until some damn bloody voters somewhere else decide once again to ignore the law. Man, political science would be easy if it weren’t for all those, you know, voters!

Interesting Canadian election!

 The New Democratic Party just won in Alberta. Rachel Notley will be the new premier.

This is not unlike the (old) Democratic Party winning in Texas. The Wildrose Party is as conservative as the Texas GOP. Meanwhile, the former ruling Conservatives may have had “Progressive” appended to their name but they weren’t progressive in any serious way.

I get the impression that the swing may have really been a vote against low oil prices. Alberta has been hammered far more than Texas. But I am not sure! Can anyone explain Albertan politics or point me in a good direction?

It is strange sometimes to wonder how my life might have been different had the Alberta job that I rejected in 1998 been on the table in 1997, before I got the offer from ITAM. I suspect that I would have taken it. I am very glad that I didn’t, but I have to say that I still wonder how things would have turned out. 

It is also strange to contemplate that Alberta would clearly be better off as part of the United States. Weirdly enough, the U.S. would also be better off with Alberta as a state. Simply put, Alberta would pay fewer taxes to Washington than it does to Ottawa, but the new state would still be a net payer into the federal system. Moreover, Alberta would be spared the economic problems that would come with independence; namely painful exchange rate choices. 

Long live united Britain

 So far, we feel pretty confident in our long-standing prediction that the Kingdom will remain United. Hooray!

Now, can we get some more unifications up around here? I mean, seriously. All this country-splitting is getting a bit boring. Bring back Czecho-Slovakia! Unite the West Indies! Heck, unite the West Indies as part of Canada!

If we must get rid of the United Kingdom, why not have it join Canada? I would get behind that.

And why not have Iceland join the United States?

The Monkey Cage goes slatepitchy on political polarization

The Monkey Cage was an awesome group blog. It brought serious political science research into the mainstream. It was all good.

And then it became part of the Washington Post.

Which gets us to an odd series of posts that attempts to convince the reader that American political polarization ain’t so bad. We can start with a post entitled “Gridlock is bad. The alternative is worse,” by Morris Fiorina of Stanford. Great scholar, great work ... but the argument is strange.

First, it assumes that the political parties would behave as they currently do under a more parliamentary-like electoral system. That makes no sense. One overreach followed by electoral disaster and that would be the end of that.

Second, to make his case that the parties left unfettered would do crazy things he writes, “The 2012 Republican platform plank stated essentially: never, no exceptions. The Democratic platform plank stated the opposite: any time, for any reason.”

Hmm. The GOP platform wrote:

1. We oppose using public revenues to promote or perform abortion or fund organizations which perform or advocate it and will not fund or subsidize health care which includes abortion coverage (page 14);
2. Prohibit the barbaric practice of partial-birth abortion;
3. Criminal penalties on healthcare providers who fail to provide treatment and care to an infant who survives an abortion;
4. Ban sex-selective abortions;
5. Protect from abortion unborn children who are capable of feeling pain;
6. We urge enactment of pending legislation that would require parental consent to transport girls
   across state lines for abortions (page 34);
7. We oppose school-based clinics that provide referrals, counseling, and related services for abortion and contraception (page 36).

Not a platform that I would support! And I would agree that point (5) effectively bans all abortions. But I would, no? Read objectively, this is to the right of median public opinion, but it is not off the charts. Of course I believe that it’s folderol, given the enthusiastic anti-abortion and anti-contraception actions of GOP-controlled state legislatures. But it sure is a sign that the national party understands the dangers of getting too far out in front of public opinion.

And the Democrats? Even less:

1. The Democratic Party strongly and unequivocally supports Roe v. Wade and a woman's right to make decisions regarding her pregnancy, including a safe and legal abortion, regardless of ability to pay;
2. President Obama overturned the “global gag rule,” a ban on federal funds to foreign family planning organizations that provided information about, counseling on, or offered abortions;

And that’s all she wrote.

So where does Fiorina’s characterization of the party platforms come from? You got me. He is a great scholar with a great book on polarization. But this was not written as a serious post. It has a slatepitchy feel: let’s devil’s advocate against the conventional wisdom. That has a place, I have been known to do it myself ... but it belongs not on the Monkey Cage that I used to love.

A worse post is Rob Ford’s “In America, polarization is a problem. In Britain, it could be a solution.” (This is the Rob Ford of the University of Manchester, not the other guy.) I have much to say about this, but I would rather make a public call for Alex Harrowell to come over here and fisk it for us. I will say simply that even if Ford is correct (Alex, we need you!), then I am not convinced that you have a problem if the only by-products are falling voter turnout and the rise of a rather silly buy aggressively anti-racist bunch of twits.

Now, as befits that great nation, the Canadian entry into the series is sober and serious. Richard Johnson of UBC limits himself to pointing out something that non-Canadians may not have realized: Canadian parties have become more polarized, whereas Canadian voters have not. That is the Monkey Cage I used to love: rigorously confirming the conventional wisdom (as AFAIK the above is the conventional wisdom in Canada) is a worthwhile initiative, Canadian or otherwise.

Anyway, earlier posts in the series are not slatepitchy, and some in fact argue against the American and British arguments mentioned above. And I do not want anyone to take this as a criticism of Fiorina or Ford. Like I said, I have done the same thing. And many counterintuitive pitches are indeed correct. But these two are odd.

How deep red Nebraska (may have) killed the Keystone Pipeline

One of things I teach my students is that it is very important to know what you don’t know when operating in a foreign country. If you have a native-level understanding, great! Play the political game. But if you don’t, then it’s best to be completely hands-off (e.g., letting local partners do the work) or stay away.

The worst thing is to think you understand something you don’t.

This is a problem that Canadians often suffer.

Our case on the Keystone pipeline highlights this problem: TransCanada was prepared for national resistance to the pipeline, but never expected a problem with deep-red Nebraska. But they got one! Oh, boy, did they get one.

Our HBS case goes through that all in depth, but Karl Sigwarth, a former student, just sent me a great story in McLean’s that tells it all far more readably. (Cases, remember, are meant to be slightly cryptic!)

My favorite part:

Back in his office tower in Calgary, Alex Pourbaix, the affable, rosy-cheeked head of pipelines for TransCanada, still marvels at how a western Canadian oil company came to be so hated by ranchers in Nebraska.

“TransCanada didn’t just dream up the route out of thin air,” he insists. But Nebraska landowners could never understand why the company didn’t simply follow the route of the first Keystone project, along the far eastern edge of the state, out of the Sand Hills and away from the aquifer. The new path struck them as so illogical that some believed only secret ulterior motives could explain it. “What we’re really afraid of is that once the tar sands run out, they are going to be piping into the aquifer to get the water so that they can export the water to other areas of the country or overseas,” speculated one Nebraska farmer, Art Tanderup.

Pourbaix was amazed by the mistrust. “I don’t even know what to say to that.”

Now, heavy opposition to anything coming anywhere near the Ogalalla was super-predictable, as anyone who has ever read The Amazing Spider-Man knows:

You just don’t mess with anything iconic enough to make it into a comic book.

That’s serious advice, by the way. It was utterly ridiculous for TransCanada to be taken by surprise at the Nebraskan opposition. They could have avoided the whole damn thing by starting with the route they eventually chose. (The green line below, instead of the yellow.) That would have also gotten the route approved at the federal level before the opposition had a chance to mobilize.

But they were just too arrogant, failing to realize that their southern neighbor was in fact an entirely different country. No American would ever do that!

You swear the man come from Jamaica, you know

Randy McDonald brought this video to our attention:

 We saw it with a number of Trinidadians and Trini-Americans. The reaction? First: “Who’s that talking? That’s somebody else talking.”

Second: see the title of this post. We are sending it to Jamaicans for review.

What I want to know is: where did he pick that up?

Suncor CEO agrees with this blog about Keystone

Nobody asked any questions about my post arguing that Keystone had become irrelevant for North Dakota. But the CEO of Suncor has given me incentive to go ahead and answer the question: Is the pipeline necessary to develop the heavy oil in Alberta?

There are a lot of arguments either way. In its Draft Supplementary Environmental Impact Statement (DSEIS), the State Department says that the oil will get to market regardless. In other words, they will come whether or not you build it. The EPA politely disagreed, claiming that State had not fully done its homework.

“We note that the discussion in the DSEIS regarding energy markets, while informative, is not based on an updated energy-economic modeling effort. The DSEIS includes a discussion ofrail logistics and the potential growth ofrail as a transport option, however we recommend that the Final EIS provide a more careful review ofthe market analysis and rail transport options. This analysis should include further investigation ofrail capacity and costs, recognizing the potential for much higher per barrel rail shipment costs than presented in the DSEIS.”

Well. I respectfully disagree. Here (from the DSEIS) is how fast the railroads have spun up their ability to move oil out of North Dakota:

Now, this was a tough feat to pull off. You had to build specialized loading and unloading facilities capable of handling dedicated 100-car trains. (These are called “unit trains,” as opposed to “manifest trains” that mix tanker cars with other cars.) But could you do in Alberta? Hell, yeah. The tracks are there and the facilities are not hard to build.

On page 50, the State officials dig into the cost data. (Is it a full model? No. But honestly, it proves the point.) Shipping heavy oil out of Alberta to the Gulf Coast of the U.S. would cost $15.50 per barrel, against $8.00 via Keystone. Consider it a $7.50 per barrel tax on the oil sands, imposed by Warren Buffet.

State argues that the comparison isn’t fair to the railroads, since it compares the price for a long-term pipeline contract with a railroad spot tariff. I don’t think that objection holds, unless the railroads become willing to offer cheaper long-term contracts. (Which they might!) So let’s stick with $7.50 for now.

But railroads have another benefit. Bitumen is nasty gunky stuff: you need to dilute it with something to be able to pump it around. You need to dilute it less to be in a rail car. That reduces costs by about $4.50 a barrel, bringing the rail tax down to $3.00.

Huh. Given the other uncertainties that companies have to deal with in the tar sands, I doubt that would make much difference on their decisions. And even that $3 could quite possibly be effectively reduced to zero, as the Bakken exporters seem to have managed. The below data is from a small company called Enerplus (see page 104). It shows the netback, or costs associated with moving their oil to market. Save for a weird spike in July, moving it by rail was much cheaper than pipeline.

(How did they move the oil for free? I have no idea. But I would guess that it is a combination of competition among railroads and an ability to charge slightly higher prices for their output than the WTI benchmark.)

In short, I do not think that failing to build Keystone will have an appreciable effect on the development of the Alberta tar sands.

But don’t take my word for it! Take Steve Williams’. He is the CEO of Suncor, the biggest Canadian oil sands player. He doesn’t think that Keystone is necessary. If Steve Williams is willing to say that in public, then he really couldn’t care less.

Interestingly, most observers interpret the State study as a reason for President Obama to approve Keystone. (See this excellent story by Ryan Lizza.) After all, it won’t make a difference to the development of the high-carbon oil sands.

Thing is, I have the opposite takeaway. To me it says that he should reject it: the pipeline has taken on iconic status among environmentalists, so why not kill the damn thing if it brings so few benefits?

It seems like I must be missing something. What?

Worthless Canadian initiative: the Senate of Canada

In the past week, the Senate of Canada — the upper house of the Canadian parliament, the chamber where politicians appointed by the Governor-General on the advice of the Prime Minister lend their sober second thoughts to legislation put forward by the House of Commons — has been getting quite a lot of bad press. Two senators appointed by Conservative Prime Minister Stephen Harper have been singled out for apparently abusing the Senate’s housing allowance, claiming that since they live somewhere far from Ottawa they need a special subsidy: Mike Duffy, of Prince Edward Island, hasn’t been seen by his claimed neighbours, while Patrick Brazeau of Québec faces criminal charges of domestic violence and sexual assault on top of housing expense fraud and any number of other tawdry claims ranging from non-payment of child support to stupid fights on Twitter.

In the above picture I took last summer of Parliament Hill’s Centre Block, the east wing housing the Senate is located on the right side of the picture. The House of Commons, the elected lower house, is on the left. Unpopular as the House’s MPs (Members of Parliament) may be, at least they have the legitimacy that comes from being elected. The Senate is a non-elected body, an upper house on the model of Britain’s House of Lords that was charged from the beginning with counterbalancing excesses of popular democracy with a regionally-balanced representation of people who are supposed to be seasoned politicians. To wit, after Wikipedia:

Under the constitution, each province or territory is entitled to a specific number of Senate seats. The constitution divides Canada into four areas, each with an equal number of senators: 24 for Ontario, 24 for Quebec, 24 for the Maritime provinces (10 each for Nova Scotia and New Brunswick, and four for Prince Edward Island), and 24 for the western provinces (six each for Manitoba, British Columbia, Saskatchewan, and Alberta). Newfoundland and Labrador, which became a province in 1949, is not assigned to any division, and is represented by six senators, while the three territories (the Northwest Territories, the Yukon, and Nunavut) are allocated one senator each.

Senators remain in office indefinitely, until they retire of their own free will or until they are unable to exercise their duties. They are appointed by the Governor-General, on the recommendation of the Prime Minister, who — whether Liberal or Conservative — has taken care to stock the Senate with politicians of their party. The social-democratic New Democratic Party (NDP), now the official opposition, has no Senators at all. This, as John Ivison noted in the right-of-center National Post, may be a significant problem for the NDP if as seems likely it may end up winning an election and forming a government.

The Senate has no legitimacy. Might it be reformed? No. The Conservative Party has promised, not least because of its roots in western Canada where a Triple-E Senate has been very popular. A senate that was Equal (each province having the same number of senators), Elected (being elected by each province’s electorate), and Effective (the body having greater control over what legislation was passed) is what Harper et al would like. A writer in the Halifax Chronicle-Herald has pointed out that reform has been very slow to come, even with the Conservatives’ majority government.

Just last week, Prime Minister Stephen Harper announced he will refer proposed legislation for Senate reform to the Supreme Court of Canada. Introduced in 2011, the legislation has been moving at a snail’s pace through the House of Commons, with the government and opposition parties blaming each other for the delays.

Harper’s request to the Supreme Court could take as long as two years, meaning any meaningful changes would be unlikely to be implemented before the next federal election.

The Conservatives have proposed limiting Senate appointments to nine-year terms and has encouraged provinces and territories to hold elections to fill vacant Senate seats. A handful of existing senators have been elected for Senate vacancies in their home provinces, then subsequently appointed by the federal government.

[. . .]

It’s six years since Harper pledged Senate reform. Implementing change in a timely manner has proven more challenging than the prime minister may have hoped.

In actual fact, anything more than slow change is impossible, since central and eastern Canada largely opposes this, as Atlantic Canada and Québec see their shares of the Canadian population drop (and Ontario sees its share stagnates) while western Canada grows. To engage in constitutional reform in Canada, one needs to get the support of seven provincial governments together holding a majority of the Canadian population. (Good luck with with getting the provincial governments of Québec, the four Atlantic Canadian provinces, and even Ontario to agree with a measure that would weaken their position nationally.) Anyway, how democratic could the Senate be when there are almost a hundred times as many people living in the most populous Canadian province (Ontario, my province of current residence) as in the least (Prince Edward Island, my province of birth)? As this article in Ottawa’s Hill Times points out, it’s only in Alberta that a majority of Canadians want the Senate to be an elected body anyway.

Alas, the official NDP policy of abolishing the Senate is unlikely; as Ivison and I note above, how to cross the threshold is another question entirely. I agree with the opinion of Kelly McParland from the National Post, but again, getting the necessary majority to abolish the Senate is going to be impossible.

[C]ommon sense suggests it’s better to just close the place than try to turn it into some deeper-thinking wing of Parliament. Liberals, for decades, used the Senate as a rest home for hacks, money-raisers, loyalists, out-of-work MPs and the occasional feel-good appointee. Brian Mulroney took a similar approach, while Stephen Harper started his first mandate by ignoring it, and more recently has tried to stuff it with appointees pledged to support his troubled plans to reform it.

The impracticality of reform was demonstrated by Harper’s reported plan to block an improved Senate from overruling the House of Commons. There are many reasons that reforming the Senate is a bad idea, but the danger that it could become a rival for power is one of the most compelling. Two houses battling for position could only add to Ottawa’s dysfunctionality. But why reform something that is only going to remain powerless?

In an ideal world, prime ministers would indeed put great thought and effort into establishing a highly skilled, intellectually impressive, thoughtful and engaged Senate. But it’s not an ideal world. The NDP supports abolition, so if Thomas Mulcair were to become prime minister — which seems the most likely alternative once Canadians grow tired of the Tories — he’d most likely treat the institution with the same contempt displayed by the Tories. A Liberal revival, should it happen, would most likely see an effort to offset the Tory majority with an equal number of third-string Liberals.

The Senate of Canada is the appendix of the Canadian variant on the Westminister model of parliamentary democracy. Unlike the human appendix, alas, the Senate can’t be removed.

Worthwhile Canadian initiative

If all goes as planned, we will soon have a post about the Canadian senate, to complement our other posts on Senates in the United States, the big Latin trio of Argentina, Brazil and Mexico, the Philippine Republic, and the Plurinational State of Bolivia. Until then, however, we leave you with this fascinating video of the Canadian lower house in action, debating the great issues of today.

Hat tip: Leticia Arroyo.

Matt Yglesias is wrong!

I like Matt’s work a lot, which is why I am getting frustrated at his continual repitition of the incorrect claim that energy independence is meaningless. This is just plain wrong.

First, he ignores natural gas completely. He needs to stop and state that he is talking about oil independence. Natural gas is extremely difficult to transport across continents, which is why it is so much cheaper in North America than elsewhere. We have already seen big and positive effects from energy independence in natural gas!

So let us focus on oil.

Oil is not some super-fungible instantaneously-transportable commodity. It is much more like lobsters than it is like ... uh ... well, the mythical conception of oil as some super-fungible instantaneously-transportable commodity. Oil prices vary by geography and by quality. There is something called the realization spread, which is the difference between the Brent benchmark oil price and the price actually received by oil producers. In 2011, it was $45 per barrel.

Infrastructure bottlenecks create all sorts of odd overland pricing differentials. (Ocean transport is different: the cost of shipping from Venezuela to China is not much more than shipping to the Gulf coast of the United States.) A Kinder-Morgan report, for example, estimates that if the Northern Gateway pipeline from Alberta to the west coast is built, then the price of crude oil in Canada will rise. (Canadian Western Special fetches a higher price in Asia than it does it North America, where it sells for about $20 less than West Texas Intermediate.) In total, the firm estimates that the pipeline will cost Canadian refiners $432 million a year. If the refiners pass that on to consumers, then it will raise prices by 6¢ per gallon. The converse, of course, is that preventing the pipeline will save Canadian consumers 6¢ a gallon. That is from one pipeline. One unpopular pipeline.

Third, it is completely legal for the United States to stop exports.

Now, in a perfect world, it is true that limiting oil exports would not make economic sense. Why not? Well, a government could limit exports, thereby lowering domestic prices ... or it could sell the stuff overseas and use the profits to subsidize domestic consumers. The problem is that the United States does not practice the sort of socialist resource nationalism that would make the second option feasible. The government does not own the subsoil rights, nor are confiscatory windfall taxes particularly likely. That leaves export restraints as the only way to transfer rents from producers to consumers.

Now if Matt wants to attack the idea that oil independence will do any good, he has many solid arguments:

1. North America (e.g., the U.S. and Canada) will never become oil independent;
2. North America might become oil independent but domestic production costs will be so high that it won’t mean anything;
3. North America might become oil independent but (2) will apply and domestic supply and demand shocks will produce significant price volatility;
4. North America might become oil independent but refiners will capture any and all benefits (there is some evidence that refiners are already capturing the benefits from the price differentials between the central United States and the coasts);
5. The idea that a U.S. administration will use its authority to limit exports is a political fantasy;
6. Limiting exports is a bad idea for other reasons. For example, high oil prices at home help phase out a fuel that is wrecking the planet, and it would be stupid to try to lower them.

In short, Matt Yglesias is wrong! Energy independence will have economic impacts: it already has in natural gas. Even oil independence will have economic impacts. It will (to a small extent) even if we do nothing because oil is not a free-to-transport completely-fungible product. But it will to a very large extent if we do what other oil-producing countries regularly do, which is restrict exports.

What he should do is rephrase . Right now, his arguments are akin to the Republicans who claim that Obamacare will raise the deficit, when what they really mean is that they do not believe that the Medicare reimbursement cuts will actually happen. He claims that energy independence is meaningless, when what he really means is that doing what you would need to do to make oil independence meaningful is a bad idea.

If that is his argument, then I wish he would make it. The conflation of oil and natural gas combined with the silly rhetorical flourish that energy independence is a myth strikes me as most unbecoming.

Maybe we shoulda fought for 54-40 ... stop the B.C. pipeline!

If North America is independent in crude oil production and crude exports are banned, then supply or demand shocks in the rest of the world will have no effect on U.S. prices. Prices will still be as high as they are now, but price volatility can be greatly reduced. Awesome!

Matt Yglesias, a smart guy, issued a really dumb tweet on this issue. He then blogged, “But unless you're planning to actually isolate North America from worldwide commodity markets, you're not ‘independent’ of anything.” Well, yes! Sweet Mary, why not isolate North America from worldwide commodity markets? Aaaarrrgh!!! Noooooo! The neoliberal brain eater gets another one! Expand your mind, Matt!

Still, there is a real rub. It is unlikely that North America will achieve oil independence without Canada, that poses a dilemma. Enbridge is trying to build the Northern Gateway pipeline from Alberta through British Columbia. Build that pipeline, and North America will still be linked into global markets. The benefits from crude oil independence will be lost.

We have established that the President can stop hydrocarbon exports from the U.S. Unfortunately, because we totally lost the War of 1812 back in the day, the President cannot stop hydrocarbon exports from Canada. Does that mean that the battle is lost?

Nope. First, the pipeline runs through B.C., but the oil is produced in Alberta. B.C. is holding Alberta hostage for more money. The B.C. government can afford to walk away: the revenues from the deal as-is are that low.

Second, the First Nations are sitting in a catbird seat. The land law is a mess. Consultations could stretch on forever. Payoffs are tough, because there are around forty different groups.

Third, while Ottawa could step in, the federal incentives are not clear. Equalization payments do spread around some of the bounty of Albertan production, of course. But there is an alternative that would give Alberta a new market and let Canada enjoy the benefits of “isolation from worldwide commodity markets”: ship the stuff east! Right now, eastern Canada imports oil from Algeria and Venezuela, which is a little crazy when you think about it. Eastern Canada, then, is at best indifferent to Enbridge and at worst mildly hostile.

Finally, the New Democratic Party in B.C. has already gone all-in against the pipeline. It will be next to impossible to walk that back if the NDP wins, and why would they want to anyway? 56% of voters in B.C. oppose the pipeline, and the NDP looks set to kill the Liberals at the next provincial election.

(I have no idea if U.S. oil companies are trying to sabotage the pipeline. It would be in their interests, but it also might set a bad precedent for Keystone. I suspect not, therefore.)

In short ... this pipeline could very easily not happen. That is the way I would bet. Call it 2:1 odds. Answer your question, Bernard?

The rogue state of Canada?

Who’s the bad boy of international arbitration? Well, the Argentine Republic, of course. And then the Bolivarian Republic. Followed to nobody’s surprise by Ecuador. But the country formerly known as Dominion is in the running: number six most sued according to the United Nations. That is deucedly odd, when you think about it.

What the hell? Canada? Well, Canada is a member of NAFTA, and Chapter 11 of NAFTA protects property rights. So when any level of government in Canada does something that an American or Mexican investor can credibly claim is tantamount to expropriation, they become vulnerable to arbitration.

Now Canada is about to ratify the Washington Convention, which would open up ICSID to its companies. In the way of Canada’s hyperfederalism, the hold-up is with provincial ratification. (In many ways, Canada is the European Union with elections and an army.) Given the country’s experience with NAFTA, there is some worry about the possibility that ICSID will overrule the country’s sovereignty.

These worries are overblown. The Washington Convention does not automatically open the way for foreign investors to go to arbitration. That requires either domestic enabling legislation or an investment treaty. What ICSID does do, is allow companies to enforce their judgments against third countries in Canadian courts. That is something that Canada’s myriad mining and petroleum companies will embrace.

Now, it also means that NAFTA arbitration decisions can be enforced around the globe ... but the fact of the matter is that Canada is a small country right next to the United States, and NAFTA decisions could already be enforced there. Giving French courts the same privilege is not going to change a whole lot. It also removes the ability of national courts to review arbitration decisions, but as a practical matter NAFTA had already removed that. Note that the Ontario Court of Appeal’s recent decision had to do with a case against Mexico.

In short, for those of you who worry about this sort of thing, Canada is already in deep with the big legal web of international property rights protection. (I like to call it the Empire, because it is cool and ironic.) Joining ICSID won’t change anything.

Olympic soccer, the Canadian part of America, and the fact that most inhabitants of this continent are not of Italian descent

I recently quit Facebook. I received two types of responses. First, “I will miss your sports updates!” Second, “Thank God you won’t be sports-posting anymore.”

Anyway, since baseball is no longer an Olympic sport, the only thing you had to fear was soccer. So I would like to extend my congratulations to the Canadian team. I love you all for defeating our former imperial overlords today. And I love you for being the part of America that doesn’t pay taxes to Washington. But you will go down on Monday.

Tancredi is a great player. I have to say that I am proud to have somebody with such a good American name is doing so well for America. Sorry, I mean Canada. You know, that really well-run well-organized beautiful wonderful not-united state up north of the Vermont border. I know, intellectually, that Tancredi is not an American name. But when I moved to California at age 18, I was stunned to discover that Italian-Americans did not make up 30% of the U.S. population. That is true, ask Dev Patnaik, a fellow New Yorker from Poughkeepsie. In late 1988, in California, he gently took aside this downstate boy and explained that most of America was not, in fact, Italian.

While I am here talking about nothing (and posting from a public terminal in an undisclosed location, before returning to the world tomorrow) does anyone know why the American team played in white shorts instead of navy-blue ones?

Another good reason Michael Ignatieff is not Prime Minister of Canada

He has a rather odd understanding of foreign affairs. This essay reads like a fever dream from a disillusioned neocon. Oh, wait ...

No, seriously, go read it. It is very odd. In its world, an allied Russia and China are backing the Syrian regime against the United States. You would get the impression that Bashir Assad is Ho Chi Minh. You wouldn’t learn that Russian “support” for Assad consists of, well, nothing. Sure, the Russian Federation has sold the Syrian Arab Republic a lot of weapons in the recent past, but that’s not the same thing as conducting “a proxy war between the Great Powers.”

Seriously, three attack helicopters is nothing compared to the massive amounts of materiel that went through Haiphong or over the Chinese border. Here is a CIA estimate of around 2,000 Soviet air defense personnel in North Vietnam circa 1965. There is also a frustratingly vague CIA estimate of Soviet military aid at the beginning of the war, but it gives some sense of the scale, and it dwarfs anything going to Syria. More information is in this 1968 CIA report about Sino-Soviet conflicts regarding military aid to the DRV. The discussion is over trainloads, for months, and massive airlifts, and shipments through Haiphong ... including potential Soviet military responses to a U.S. blockade.

And then the money document from 1968: go down to the last two pages. 2,230 artillery pieces in 1967! 70,000 tons of ammunition! 3,810 surface-to-air missiles! 123 armored vehicles! 700 vehicles from China, another 24,000 tons of ammunition, and 61 MiG fighter jets!

(By the way, did you know the U.S. operated unmanned drones in Vietnam? Page 2.)

Dude, that was a proxy war. This is Russia and China being annoying.

If you want some more serious intel about the Syrian civil war, this report is a good place to start. You also might want to check out this report about the Russian equipment used by the Syrian government. But Ignatieff’s essay is just completely goofy. Good thing he didn’t become Prime Minister. At least Canada doesn’t have the capability to act on the ahistorical bizarro-world musings of its head of government.

How energy independence could undo globalization

 North America is on the verge of finally achieving the much-vaunted goal of energy independence. In fact, the continent has already achieved that for everything save petroleum, but now the latter is in sight. A combination of increased oil sand production in Canada, shale oil discoveries in the United States, and tightened CAFE standards have certainly made it plausible to believe that North American net energy imports will drop to zero by 2020, if not sooner. In fact, it is possible to imagine a situation where the United States alone achieves energy independence by that date.

But does it matter? Assuming no political reaction, no, it probably doesn’t. North America will still be vulnerable to supply shocks from the rest of the world. If the demand for petroleum rises elsewhere, then domestic prices will rise in line. That said, infrastructural bottlenecks can produce lasting price differentials — it doesn’t matter how much demand rises elsewhere if you can’t ship the stuff to those places — but if North American oil production rises enough, then one can assume infrastructure will be repurposed or built.

Wait ... can no political reaction really be assumed? Consider Argentina. The Argentine government imposes high export taxes on oil. Those taxes partially insulate Argentines from price increases elsewhere. High retail taxes keep consumer prices up, but that is a good thing: policy does not subsidize consumption, but the government captures rents that would have otherwise gone to producers. (The retail gasoline tax runs at 70% of value, with a floor of 53.75 centavos per liter, or 46.9¢ U.S. per gallon. The 21% VAT and 2% provincial tax is then imposed on top.)

Now, the U.S. constitution forbids export taxes. But it does not forbid blocks on export infrastructure. And that is just what you are already seeing in the natural gas space! Last month, the Energy Information Administration reported that LNG exports could raise U.S. prices as much as 54%. Representative Ed Markey (D-Massachusetts) immediately responded: he demanded that the federal government should refuse to certify export projects “before all impacts on American families and businesses are considered,” and stated that he will introduce legislation “that would keep more American-made natural gas in America.”

The same pressures apply to oil, although it will be harder (but not impossible) to stop oil export projects. And while the constitution is crystal clear on export taxes, “No tax or duty shall be laid on articles exported from any state,” it is unclear as to whether the export of a product could simply be banned altogether, under either the necessary and proper clause or as a national security measure.

If the growth of world oil supplies fails to outpace demand, then the result is not likely to be smoothly escalating prices. Rather, the result is going to be ever-increasing volatility in the oil market. Small shocks in either direction will lead to huge price swings. In that environment, export bans would be clearly attractive to consumers ... and some producers might also welcome the market stability that they would bring.

In which case we are back to the pre-1970 world. And let me be clear: I do not think that would be a bad thing. The Persian Gulf would lose its economic significance (at least for North America) even if it continued to grow wealthy from the black gold. The U.S. economy would be insulated from price shocks elsewhere. If imports shrank to a small level (and net imports disappeared) might even be able to get a winning coalition around imposing import duties on oil, which would have all sorts of good effects if the U.S. then again lost self-sufficiency.

If that happens, then the economics and geopolitics of oil will be transformed. The analogy of a big world pool of oil, into which production is poured and out of which consumption is sucked, will no longer hold. A lot of the old-fashioned verities about control of supply will start again to make sense. There is a risk, of course, that as nice as it would be for the United States to insulate itself from foreign shocks, the result might be increased instability and resource conflicts in the rest of the world.

Finally, there is an implication for Canada-U.S. relations: the United States has a vested interest in preventing Canada from building more pipelines to the West Coast. Inasmuch as North American self-sufficiency applies to North America and not just the United States, then the U.S. will only be able to insulate itself from swings in the world oil market if Canada has no other place to send its oil, at least not at a reasonable price and in large quantities. (Oil can be shipped by railroad, but there are bottlenecks, since the number of tanker cars is limited.) Of course, should oil prices become sufficiently volatile, it is possible that Canadian producers would approve of export restraints, in return for steadier prices. But it is just as likely that they will ignore American entreaties and send their oil where it will fetch the highest price. Unless, of course, they can’t.

In short, energy independence does matter, but only in conjunction with political steps that amount to the end of an integrated world market in crude oil.

Fear of a black Canada

 Trinidad almost became an American territory in 1931. It didn’t because the British government was perfectly willing to default on its debts to the U.S. government. The Hoover Administration, sensibly, didn’t push the issue.

The Bahamas, it turns out, almost became a Canadian province in 1911. The colonial assembly in Nassau, backed by prominent Canadian investors in the islands, pushed hard to join. The population of the islands was only 56,000, but there was plenty of money to be made investing in infrastructure: the first telephones were only installed in 1906, and electricity arrived in the archipelago in 1909. The Royal Bank of Canada set up shop in 1908.

Canada’s share of Bahamian imports, however, remained small: $28,392 in 1911, compared to $1.3 million in American imports to the archipelago. Moreover, the fiscal cost of taking over the islands would have been minimal: the federal government spent only 6.1% of GDP in 1911, and transfers to provincial governments amounted to only 0.4% of GDP. (Federal infrastructure spending in the Bahamas would have contributed to economic growth in the islands and likely been a wash for the treasury. It also would have been negligible on the scale of the Confederation.)

So why didn’t it happen? Simply put, Canadian racism ... triggered by a wave of American political refugees. Prime Minister Wilfred Laurier (a Liberal) seemed open to the idea of letting the Bahamas join until, in 1911, a strange wave of racial fear arose from Manitoba. A group of about 1,000 wealthy black Americans from Oklahoma — fleeing the 1907 passage of Jim Crow laws after statehood — arrived at the Emerson border crossing. The result was panic on the prairies.

I’ll turn the floor over to William Thoburn, a Conservative MP from Ontario: “As long as we give the free homesteads in Canada’s northwest, they will come by the tens of thousands. I would like to ask the government if they think it is in the interests of Canada that we should have Negro colonization in the Canadian northwest. Would it not be preferable to preserve for Canada the land they propose to give to Negroes?”

The hysteria soon spread to Alberta. A group of prominent Albertans wrote to the federal interior minister, Frank Oliver, with a series of complaints straight out of an American inner suburb, circa 1970. First, they worried that “Negro immigration” would create white flight and drive down property values. (The idea of rural white flight on the Albertan prairies boggles the mind.) They then went on to worry about their women. “We do not wish that the fair fame of Western Canada should be sullied with the shadow of Lynch Law but we have no guarantee that our women will be safer in their scattered homesteads than other white women in other countries with a Negro population.” To his credit, Premier Arthur Sifton refused to block black immigration.

The panic was especially crazy because Canadian law required immigrants to have on them at least $50 per man, woman, and child. In 2010 dollars, that’s $1,185 — but that figure doesn’t take into account the fact that people were poorer a century ago. When adjusted for increases in average wages, each immigrant was required to have the 2010 equivalent of $7,425. In other words, these were not the huddled masses; these were well-heeled political refugees fleeing the sudden imposition of racial tyranny in their home state.

From the Toronto Mail and Empire of April 27, 1911: “If Negroes and white people cannot live in accord in the South, they cannot live in accord in the north. Our western population is being largely settled by white people from the United States. If we freely admit black people from that country, we should have race troubles that are a blot on the civilization of our neighbours ... The Negro question is of the United States’ own making and Canada cannot allow any part of her territory to be used as a relief colony on that account.”

The Canadian government ordered their agent in Kansas City “to refuse certificates or any encouragement to migration of this class” and “take immediate measures to check this class of immigrants.” It then limited black immigrants to Emerson and North Portal, where it subjected them to degrading medical examinations. It went so far as to hire a black doctor from Chicago to travel to Oklahoma and give lectures about how terrible the Canadian climate was for black people. Finally, in August 1911, with a federal election coming up fast, came this order-in-Council, pursuant to the Immigration Act of 1910, which allowed the government to ban “immigrants belonging to any race deemed unsuited to the climate or requirements of Canada”:

In this atmosphere — with the Liberals under fire for their support of the Reciprocity Treaty with the United States — it should come as no surprise that Prime Minister Wilfred Laurier (a Liberal) would decide against expanding Confederation to the Bahamas on grounds of, in his own words, incompatible “ethnical origin.” Laurier was willing to take West Indian islands as purely colonial concerns, with no representation in Ottawa and no right of immigration, but that wasn’t acceptable to West Indian elites which already enjoyed a modicum of self-government. The Bahamas, for example, possessed a parliament elected by a property-restricted suffrage. (The restrictions meant that white people held 26 out of the 29 parliamentary seats, even though they made up only a quarter of the population.)

When Laurier lost the September 1911 election to Robert Borden, the Bahamians tried once again. The big issue in the election was a proposed tariff-reducing Reciprocity Treaty with the United States. The Conservative Party opposed the agreement, and it used imperial rhetoric as part of its appeal. With pro-Empire Borden as Prime Minister, the (unelected) Governor of the Bahamas, William Grey-Wilson, travelled to Toronto. Among other things, he gave a speech before the Empire Club. In it, Grey-Wilson extolled the wonders of trade and tourism — which were, in fact, the biggest gain from Confederation. The Bahamas would win a secure market for its tropical products, and Canadian companies would gain control of that trade. (They would also cement their domination of Bahamian finance and services.) Grey-Wilson, of course, felt the need to assure Canadians that the absorption of the Bahamas would not lead to black members of parliament sitting in Ottawa:

Now, the constitution of the Bahamas, like the other three B’s of that portion of the Empire, is on a suffrage that is almost equivalent to yours in Canada. I have examined them. Separately and I think they are very much the same. That is to say, any member of a community who is in possession of a house of the value of $10 a year is entitled to vote. That, of course, is practically manhood suffrage. That vote is common to the blacks and to the whites. The inhabitants of the Bahamas are one quarter white and three quarters black.

The result of our elections has been for many years past — and I would remind you that the Bahamas have a constitution almost as old as Newfoundland — that the black man almost invariably elects a white man to represent him. And why is that, gentlemen? You here are conversant with the horrors of the situation in the Southern States of America. In the Bahamas we have no such position. (Applause.) I say that a white woman in the Bahamas, in the most isolated position, is as secure today as if she were in this room now. (Applause.) I defy anyone to say that about the Southern States of America.

Now, gentlemen, why is that? It is not because we have treated the black man as the equal of the white; no. He admits himself — the most intelligent of them with whom I have spoken — he admits himself that he is the white man’s inferior. He admits that he is of a child race, undeveloped; but it is because, being a child race, we have extended to him, as we have to all the other races of the Empire, that universal unswerving British justice.

Unfortunately, Governor Grey’s arguments failed to assuage Prime Minister Borden. In a meeting between Grey and Borden on October 18th, 1911, the Prime Minister rejected the possibility of taking the Bahamas into the Canadian confederation. His reasoning was that the events of the past year had proved that Canadian public opinion would not countenance the admission of a majority-black province, no matter how small or how far away. (The refusal of Toronto hotels to give rooms to black Bahamian visitors only reinforced his point.) The Colonial Office concurred. Worried by the hysteria engendered by the emigrants from Oklahoma, the C.O. reported the following about the possibility of a Bahamian province: “No doubt for the moment the Dominion government would safeguard their interests, but there are signs of the rise of a colour question in Canada and in any case it cannot be long before U.S. opinion gives the tone to Canada in regard the Negro.”

Ultimately, all that came out of the talks was a reciprocity treaty with several West Indian jurisdictions. Reciprocity entailed a 20% tariff cut; it was far from the free trade entailed in political union. It barely dented American domination of Bahamian commerce. And so, much as racism derailed an 1867 attempt by the United States to annex the Dominican Republic, racism derailed what should have been a simple, easy, and mutually-beneficial extension of the Canadian confederation into the Caribbean. Canada eventually absorbed poorer, less strategic, and more troubled Newfoundland, but those islanders had pale skins.

As for the Bahamas, it became part of the United States ... okay, not officially, but watch this space.

Is the U.S. exceptional in its policy towards Arab oil?

 I am a bit confused about what Prof. Quiggin is trying to say here:

The point applies most obviously in relation to oil. The idea that the US can legitimately use its military power to ensure continued access to oil resources rests, in large measure, on the (not entirely unfounded) assumption that those controlling the resources are a bunch of sheikhs and military adventurers who happened to be in the right place, with guns, at the right time. Without the Arab exception, the idea of oil as a special case, not subject to the ordinary assumption that resources are the property of the people in whose country they are found, will also be hard to sustain.

Prof. Quiggin is a very smart guy, and when I say I’m confused, I mean that honestly. The governments of Arab oil-producing states keep almost all of the rents from the oil extracted on their territory; this is just as true of Abu Dhabi, which works with the majors, as it is of Saudi Arabia, where state-owned Saudi Aramco monopolizes production. Moreover, only 9% of the oil produced in and around the Arabian peninsula goes to the United States. Put another way, the U.S. only gets 10% of its oil from the Arab countries of the Gulf. The U.S. gets no oil from North Africa. The U.S. does, of course, use its military power to insure that the oil keeps flowing. But I don’t see that as much different from what the U.S. does with other strategic raw materials, or in regions outside the Arab world.

Matt Yglesias got me even more confused:“Certainly if you were just to look at things in coldly rational terms, the resource-rich country the US should be seeking to dominate militarily is Canada, located conveniently next door. And, indeed, in the first half of the nineteenth century that’s how hawkish American politicians saw things. But it would be politically unacceptable in a modern context to try to bully Canada or Norway into coughing up oil.”

Except ... uh ... how is U.S. policy towards those countries different from our policy towards Saudi Arabia? Canada is not about to embargo U.S. oil; Soviet fleets are not about to blockade Norway. American policy would be rather different if either were true. (And policy was different, when the latter was a real threat.) The oil does belong to the provinces in Canada and the national government in Norway; but ditto in Kuwait and Saudi Arabia and Iraq. What does Matt mean when he implies that the U.S. uses military force to make the Arab countries “cough up oil”?

Quiggin’s main point is about overall U.S. policy towards the Middle East, but I honestly do not what he’s trying to say about oil. Nor do I understand Yglesias’s. Can someone explain?

Race, roads, or regulation? Canadian and American cities

 When asked why Canadian cities are so built-up compared to American ones, Martin Wisse of the Netherlands suggests, “No white flight.” It’s an appealing answer, given America’s massive urban ghettoes, but it’s almost certainly wrong.

 

Consider the differences between Seattle and Vancouver. For an American city, Seattle is very white and disproportionately childless. The city, however, splatters across the horizon, with few high-rises outside the central business district, while Vancouver is relatively compact and its proliferating residential towers reach to the sky. All this despite geography in Seattle that should encourage density!

The Seattle-Vancouver comparison alone should make you doubt the validity of the “white flight” hypothesis. There are other reasons, however, to reject it. Until 1990 none of Canada’s metropolitan areas declined in population — the country didn’t see shifts in economic geography like what turned cities like Buffalo, Detroit, New Orleans, Flint, Akron, Pittsburgh, Dayton, and Syracuse into what they are today. (The 1990s recession changed that, but the places that shrank tended to small, and located in Atlantic Canada or northern Ontario and Quebec.)

More importantly, white flight can’t explain why the nonblack sections of American cities look rather different from their Canadian counterparts. Nor can white flight (by itself) explain why American suburbs strongly resist residential high-rises, whereas Canadian ones (Montreal excepted) take to them with relative zeal. For example, Chicago’s North Side does not look like Toronto, save for a belt along the lake. Nor does Boston’s central and northern urban area — Back Bay, South End, North End, Southie, Brookline, Allston, Brighton, Cambridge, Somerville, Chelsea, Watertown, Arlington, Belmont, Charlestown, and East Boston — look much like East York or Scarborough. It is true, of course, that the great American ghetto is an American phenomenon, created by America’s strange racial caste system, but racial tensions don’t explain why Houston looks very different from Calgary.

So if isn’t race, then what is it? Another possible culprit is roads. American cities have a lot more freeway-miles per capita than their Canadian counterparts. The logic is not that freeways destroyed the neighborhoods that they cut through. I’m sorry, but speaking as someone who grew up in neighborhoods that had roads driven through or beside them, that argument is just stupid. (Yes, this applies to Toronto.) The plausible logic, rather, is that inner city neighborhoods were always relatively undesirable, but without subsidized freeways it would have harder to leave them for lower-density suburbs.

I am sympathetic to this argument, but I have some doubts. (Not least that my wife and I prefer dense inner city neighborhoods to the suburbs.) It is almost certainly true that American-style sprawl requires massive investment in freeways. Fewer freeways, more density. More density, more high-rises. The problem? If density the key, why does Los Angeles look so different from Toronto despite being denser? The 11.8 million people who live in Los Angeles’s urbanized area (that is, the area defined by the lights visible from space at night, minus fringe areas with a population density below 1,000 people per mile) are packed in at 7,068 per square mile, whereas their 4.6 million Torontonian counterparts live at 6,835 per square mile. Perhaps it is the freeway net that allows Los Angeles to splatter its density more uniformly than Toronto, but that feels ad hoc as an explanation, especially since Toronto’s suburbs are actually very densely-populated compared to Boston, Chicago, or New York.

The other possible explanation is regulation. In this view, roads may have contributed to American sprawl, but zoning is what really keeps it in place. For this view to be correct, Canadian zoning has to be less strict than American zoning. Are Canadian cities more likely to approve density, allow smaller lots and narrower streets, require fewer parking spaces, and permit higher buildings? This is not hard to believe, considering the far greater control that provincial governments exercise over municipalities in Canada, but I do not know the answer.

 

In point of fact, the “roads” and “regulations” hypotheses may be hard to disentangle. If a lack of roads drives up land values (by limiting the effective supply of land), then there will be more political pressure to allow dense development. After all, people need places to live. On the other hand, if it is easy to get out to the burbs (via all those freeways) then there will be less political pressure on inner-city areas to permit taller buildings. Cambridge, for example, saw a high-rise boom in the 1970s, which the city deliberately stepped on. As a result, the Central Square subway stop (where we live) is stupidly surrounded by two-story buildings instead of 20-story towers. Our building was built in the early 1990s, and was effectively capped at five floors. Without Boston’s two ring roads (I-95 aka “Route 128” and I-495), the pressure to build up in places like Cambridge would have been harder to resist.

 

In fact, however, it is possible to disentangle between “roads” and “regulations,” by testing for the effect of zoning changes on land values. Of course, it’s never that easy — endogeneity is always a problem. Ed Glaeser has a paper suggesting that zoning is determinative in shaping American cities in California and the East Coast north of Virginia. He has a particularly-detailed study of Boston that supports the zoning hypothesis: market forces (given the existing road net) would make Greater Boston rather denser were the regulations less restrictive. (Newton would look like Brookline; Brookline would look like Brooklyn; and Boston itself would be filled with high-rise towers.) On the other hand, his same work implies that in most of America it is the road net what produced sprawl, and not race or land-use regulation.

In short, most American cities sprawl because the federal government built roads out to the horizon. The exceptions are along the coasts, where U.S. cities would look more like Canadian ones in the absence of tight zoning laws. The increasing segregation of immigrants appears to be an effect of the above, rather than a cause. Of course, the great American ghetto is a striking and horrible thing, but we would have had them with or without freeways and zoning.

Canadian cities really are different

 I was in Toronto last week. I’ll discuss the reasons in a later post. My wife and I stayed out in the suburbs. Our hotel was in Scarborough, right north of Highway 401.  We spent most of our time (when I wasn’t downtown at the University of Toronto) in the further suburbs of Pickering and Ajax. Most of it could be in the United States.

Downtown Toronto is about as generic as it is possible for a North American downtown to get. This is not news. And some parts of the suburbs, like Ajax (pictured above) look like the more depressing parts of Orange County, California, save for the houses being in a slightly different shade of Caucasian skin tone. But even after saying all that, when my father-in-law said that Toronto really doesn’t feel like America, we knew exactly what he meant.

He meant the high-rises. You see giant towers everywhere, where you wouldn’t expect them to be. We were in a 14-story hotel, for example, across a ten-lane freeway from a sprawling shopping center and not far away from subdivisions like the one above, where every house looked alike. But there were two ginormous 30-plus-story condo towers going up right next door. And there was nothing unique about this. High-rises sprouted in parts of the city where you would be very surprised to see them south of the border. You really need to rent a car and drive around to appreciate the difference; hanging around downtown or taking the subway won’t show it to you.

But I am skeptical of both statistics and personal observation. I won’t relax unless they agree. So I went to the Emporis website, and pulled up statistics on buildings over 35 meters or 12 floors. What do you know?Normalized by population Toronto ranks below the high-rise forests of Honolulu and Vancouver, but looks more like the megalopolis of New York (and the D.C.-Arlington core of Greater Washington) than other mid-sized North American cities. Chicago and Philadelphia don’t come close. 

 

Still, the above chart is misleading, because Toronto proper contains 45% of the metropolitan population. In other cities, like San Francisco or Miami or Seattle, the central city is just a sideshow — an important neighborhood, but not representative of the metropolitan area. Miami-Dade, which I know very very well, has a high-rise core and a couple of clumps elsewhere, but nobody would call the place a high-rise city. Ditto San Francisco — Marin and the East Bay and San Mateo are all low-slung places. So I cut out all the places where the center city holds less than a quarter of the metropolitan population.

 

The result is even more dramatic. Toronto is up there with NYC as an outlier. In fact, all Canadian cities are outliers, even the ones that look like they aren’t. Why? Well, central Ottawa, Edmonton, and Calgary contain respectively 67%, 63%, and 85% of their metropolitan populations. Chicago, Las Vegas, Philly, Houston, and Los Angeles, on the other hand, only contain respectively 30%, 29%, 26%, 38%, and 30% of their metropolitan populations. Their central municipalities are a big part of the metropolis, but the cities as a whole feel a lot more low-slung than the central city figures indicate. Central Calgary and Edmonton, on the other hand, feel like parts of much bigger metropoli than they are when you visit, because they’ve got these big crowded bustling and disorderly urban cores than you don’t associate with North American cities that have only a million or so people in them. 

Canadian cities really are different, and it really is something that you can’t fail to notice without needing to look very hard. The only way you’d fail to notice is if your only exposure to America consisted of Honolulu and New York. Now, that isn’t hard to imagine, but it’s gotta be rare.

But this just raises a question: why do Canadian cities sprout so many more high-rises than their American (or Mexican) counterparts? 

ADDENDUM: Another way to slice the data below the fold.

Happy belated Canada Day, with a sporting twist

 Sorry, I missed it yesterday. Anyway, I once again want to wish our northern neighbors a happy birthday. We’ll be making two trips there this year (both for weddings, actually), including my first-ever visit to Montreal. Toronto, whatever, it’s a nice city, but sort of like combining the North Side of Chicago with Minneapolis ... not all that special. Even the G-20 riots were kind of boring. (Which is in fact a good thing, speaking as a veteran of non-boring riots in Mar de Plata and La Paz.) But Montreal! That sounds different.

Please, suggestions for things to do or see on either trip!

Anyway, my only pity for Canada on this birthday comes from the extreme unlikeliness that the country will ever qualify for a World Cup, let alone have a shot at winning. National teams do well based pretty much on a few variables: population, GDP per capita, and number of years playing at the international level. Canada only does well on the second. Moreover, like the United States, its athletes are quickly diverted into the real national sports: hockey, baseball, basketball, and gridiron football. (13 Canadians play in the NFL, and as most of you know, the country has its own professional league, using slightly different rules.)

 
Hockey is a good game, but like soccer, it’s an acquired taste. My entire family in Miami seems to have been converted to the sport by the unlikely arrival of the Florida Panthers to the western reaches of Fort Lauderdale. Season tickets, the whole bit. Yet, well, I can barely watch the sport ... I barely managed to pay attention to the Olympic games. That is not because hockey is a bad game! Sit me down with an expert and I would enjoy it; repeat five or six times and I would be a fan. But it is not a game conducive to enjoyment if you don’t understand it. AFAIK, basketball is the only game regularly enjoyed by people with only the foggiest idea of the rules and tactical subtleties. (I would be one of those people.)

Moreover, if Canada does start to generate world-class players, it will face a catch-22: the best of the best will probably qualify for American or European passports and play for those teams rather than hitch themselves to a losing Canadian team. FIFA rules discourage team-swapping, so the current crop of Canadian players is locked in, but future ones may want to keep their options open. As a nationalist myself, I would be stupid to discount national pride in making those decisions ... but if the U.S. was a no-hoper, then I wouldn’t blame an American for pulling out that old passport from grandma.

Yes, I spent a good chunk of the U.S.-Algeria game mocking the Algeria fans across the street for fielding a team full of Frenchmen. No hypocrisy: that sort of thing is the point of international soccer. You should see what Aldo and Jude and I write on each other’s Facebook pages.

In short, given that Canada is a power in an international sport with high barriers to entry (hockey), a very powerful player in an international sport with low barriers (baseball), and is unlikely to host a World Cup in the near-future, it probably won’t be going anywhere in soccer anytime ever.

My advice to Canadians? Root for the U.S., or if pride won’t allow that, Mexico. See picture above. Best victory since 1862, that was!

U.S. ♥ Canada, Earth not so much

  Thoughts on cost overruns in the oil sands will be coming up quickly.  Right now, just the (belated) news that the U.S. government has approved the Alberta Clipper, a pipeline that will move crude from Hardisty, Alberta, to Superior, Wisconsin.   

So what is the environmental problem?  Well, aside from the problems with tailings pools and the like within Alberta, the oil sands release a boatload of carbon.  After all, in order to make the stuff you need to inject steam right into the ground.  That takes a lot of energy.  In other words, you need to burn a lot of stuff in order to get stuff you can burn. 

Dealing with that carbon will be Canada's problem.  If Waxman-Markey passes, it is quite possible that the U.S. will tax Canadian oil exports.  Even if that doesn't happen, the adjustment burden will fall north of the border, unless Canada and the U.S. get together on a combined cap-and-trade system.  Unless ... well ... unless both countries decide that it is just more important to have a big and growing share of North American oil consumption produced in North America, with the rents (such as they are) going mostly to the Province of Alberta. 

One reason why oil sands project run overbudget below the fold.  Full explanation still forthcoming, with the preview that the comment thread pretty much nailed the reasons. 

Cost overruns in the oil sands

  As part of writing a book about the Panama Canal, Carlos and I had to do a lot of research into cost overruns on big infrastructure projects.  We found the usual horror stories.  The Panama Canal went over-budget by a factor of 2.0.  BART exceeded projections by 1.6, and the Washington Metro hit 1.8.  Miami’s Metrorail jumped the limit by 2.1, the Big Dig ran over by 2.9, and the Brooklyn-Queen Expressway beat its budget by an astonishing 5.1. 

Sounds bad, right?  And in the case of the BQE, it is bad.  But you haven't seen overruns until you've seen the private sector try build multi-billion dollar stuff in the Albertan oil sands.  Suncor's Millenium project ran over by 1.6, about the same as BART.  Shell's expansion of the Muskeg River mine has hit 2.2, and counting.  In 2008, Syncrude's Stage 3 expansion passed 2.4.  The Canadian Association of Petroleum Producers estimates that capital costs for ongoing projects are going to average as much as 2.7 times the 2005 projections. 

Not quite the Big Dig, but making the Panama Canal look good.  I have some thoughts as to why this happens, but before I reveal them, what do you think?

Canadian oil taxes: too high, too low, or just right?

  Even if the occasional bout of Canadian sanctimoniousness can make me want to try to bloody some noses, I am a huge admirer of the Great White North.  Which is why, among other reasons, I am trying to figure out whether said country’s tax policy towards its oil and gas industry is too lenient, too onerous, or just right. 

Statistics Canada publishes some very good statistics on the “conventional oil” industry, which, confusingly, includes natural gas but excludes the Albertan oil sands.  Their numbers include operating costs, capital expenditures, and exploration costs.  They also include taxes and royalty payments to provincial governments.  (The Canadian constitution reserves authority over natural resources to the provinces.)  You have to do some digging to get the equivalent numbers from the oil sands, including some figures from the Albertan Ministry of Energy that might not be entirely equivalent, but it can be done.

And the results?  Well, Alberta produced C$79 billion worth of hydrocarbons in 2007, C$22,687 for every man, woman, and child in the province.  Of that, conventional hydrocarbons made up C$55 billion.  The companies that produced those hydrocarbons spent C$4 billion on exploration, C$17 billion on development, and C$10 billion on operation.  That left them C$24 billion in net income, of which the government of Alberta took C$9 billion in taxes and royalties.  Add in another estimated C$2 billion in income tax payments, and you have a total take around 65% of the industry’s net cash flow before financing, which is what the measure really is.  Crushing socialism!  Or, put another way, a sensibly high tax rate, since the royalties are structured in such a way as to essentially exempt new investments until the initial costs are recovered.

That fact, however, suggests that maybe net cash flow isn’t the right denominator.  After all, income taxes are generally applied before investment expenditures.  Alberta is trying to subsidize them.  In that case, isn’t operating income the right measure?  Okay ... using operating income as the denominator, the effective tax rate on conventional hydrocarbons in Alberta drops to 22%.  That seems pretty low.  And, of course, if you just use the government take as a percent of revenues for your calculation, then you get a rate of only 18%.  That is almost tax-free compared to such left-wing hotbeds as Alaska.

The numbers for the oil sands are even stranger.  On the one hand, taxes and royalties as a percentage of operating income was only 28%, and as a percentage of gross revenues were only 19%.  On the other hand, if Statistics Canada is to be believed, the industry reinvested all of its operating profits and then some in 2007.  Royalties came to 150% of net cash flows before financing.  If the idea is to encourage investment despite low profits, then maybe the system is about as high tax as it can get.

So what’s the “right” number?  Are taxes high or low?  For what it is worth, other provinces, like Saskatchewan and Newfoundland, turn out to be even lower tax than Alberta ... but don’t have anything like the amount of investment.  Companies there are taking the money and running. 

Thoughts?

How Canada works

  Want to know more?  I'm not sure that everything in the series is correct, but it's a good place to start learning more about how the country formerly known as a “Dominion” regulates its economy.

Speaking of which, y'all really do need a name.  Just plain “Canada,” well, it lacks dignity.  Get a “Commonwealth” up in here, or maybe a “Federation.”  Something, people. 

Demography matters, and a music video

  There is an interesting (if rarely updated) blog called “Demography Matters.” It's hit a few interesting topics lately.  Randy McDonald is the driving force behind it.  For those of you who don't know him, he wrote the defining takedown of the whole “Eurabia” nonsense, aka the idea that immigration and differential birthrates will eventually give Europe a Muslim majority.  But the blog is a lot more than that.

Here is a discussion of Greenland.  Short version:  considering the country's dependence on Danish expats for skilled labor, even a non-independence independence of the sort negotiated by other microstates could lead to disaster.  The population is shrinking despite high birthrates.  Maybe they'll get lucky and find oil.  More likely they will remain a dependency of Denmark forever, most likely de jure but definitely de facto.

The blog also recently discussed Iran.  Short version:  looks like Europe!  Crashing birthrates could fuel an economic boom if only the place could get the policies right.  In comments there is an interesting discussion of the fact that American birthrates have stayed above replacement ... and that much of that difference is because urban birthrates in the U.S. aren't appreciably different from their suburban or rural equivalents.  The really weird fact?  Canadian birthrates are crazy lower than U.S. ones, even in such similar places as Washington and British Columbia. 

Finally, it presents a scary version of Cuba's future, in which the country enters a demographic death spiral.  All it lacks is a projection of the worst case scenario: what would Cuba's population and age pyramid look like in 2050 if it goes the way of Ukraine and stays there?

Below the fold is a music video.  It is for Randy, for reasons he understands.  Essentially, while not my cup of tea, it shows what can be accomplished in his preferred genre in both aural and visual terms when attempted by two rather accomplished artists.  Enjoy.

Governor-general eats raw heart of freshly-killed seal, “tastes like sushi”

  Well.  I just got this news: 

That is totally cool.  Sarah Palin may stand in front of turkeys getting stuffed in grinders and sit on dead bear rugs and shoot wolves from helicopters, but raw seal heart takes it to a whole ’nother level.  If you want the gory details, go watch here.  (Like, seriously gory.  The heart gets eaten right out of the carcass of the dead seal.) 

But I must correct my internet acquaintance, James Nicoll.  James, Governor-General Michaëlle Jean is not your head of state!  You oughta be ashamed of yourself, James.  Unforgiveable.

In fact, it seems as though Canada’s actual head-of-state may not approve of her representative eating the raw heart of a dead seal:

I love Canada.  First the Queen’s representative banishes parliament, then she eats a raw heart right out of a dead seal.  What next?

Unbecoming Canadian sensitivity

  I am an unabashed Canadaphile.  The Canadian constitution is rather better designed than the American one, other than not having a popularly-elected governor-general.  The health care system is not the one I’d design from scratch, but it has ours beat cold.  The federal system makes more sense.  They don’t fetishize local government.  Plus, they play good baseball and make good hip-hop.  And I have in-laws in the Mounties.  How Canadian is that, eh?

 

With that in mind, Canadian defensiveness towards the U.S. perplexes me, and it pops up in the most unexpected places.  Frex, as I didn’t know until I read Randy’s blog, it seems that Janet Napolitano may have accidently confused the Millennium Plot with 9-11 during a press conference.  OK, that’s a little embarrassing.  I’ve been there myself.  But enough to produce this reaction?  Or this one? 

The Globe and Mail column is particularly confusing.  After all, the sensible ripost to any mention of the Millennium Plot is to say, as the column did, that the U.S. blocked the terrorists at the border and the system worked.  Instead it brings up security theater that has nada to do with Canada (shoes in airports) and stuff that’s really aimed at keeping track of Americans, like requiring passports.  And that after a claim that Janet Napolitano is just like Dick Cheney.  Erm?  From whence this excitement?

Now, there are countries where people are understandably worried about perceived slights from the United States.  Like Mexico, where there are umpty-scrump reasons for people to be defensive with respect to their 800-pound neighbor.  Among other things, Mexico lost its war with the United States.  That sensitivity is why the U.S. needs to apply the same border controls to the northern and southern frontier, or at least be publicly seen to be doing that; otherwise key segments of Mexican public opinion would be enflamed, making cooperation unnecessarily harder. 

But similar Canadian sensitivity I don’t get.

Canadian policy on captured pirates: let ‘em go. ¿¿De veras??

  As our few readers know, we've been covering piracy for some time on this blog.  Our first post on the topic, in fact, took on the myth that European navies refused to enforce the law against pirates.  Only now Robert Farley tells us that the Canadian and Dutch navies went ahead, captured pirates, and released them.  Er?

Well, NATO is not the problem.  It is true that NATO, which is not a sovereign state, does not have arrest powers.  But the national navies operating under NATO command do have such powers.  Now, I'd be happy with giving an international organization arrest powers, but I can see why some politicians might be reluctant to take that step.  That said, the truth is that not only do national militaries have the power to arrest pirates on the high seas, since December they've had the ability to do the same thing anywhere in Somali territory, sea or land.

So if this and this story are correct, something isn't working.  In the Dutch case, it seems to have been a low-level screw-up.  Ships under European command have standing orders to turn captured pirates over to Kenya for prosecution and punishment; ships under NATO do not.  There was a deputy from the justice ministry on board the Dutch ship (for precisely this reason), but whoever it was decided to let the pirates go.  Parliament appears to be annoyed.  At some point, I suppose, we'll find out who made the decision and why.  We might even find that circumstances made it a wise choice.  But it isn't Dutch policy, and it seems to be causing the government some headaches at home.

Canada seems to have a deeper problem.  The Globe and Mail has deeply misinformed its readers by reporting, contrary to fact, that “Canadian sailors, like their NATO allies, lack the authority to make arrests in international waters.”  Of course, the Globe and Mail is parroting what seems to be Ottawa's official line.  After all, the Prime Minister said in Port-of-Spain that the Winnipeg did the right thing by releasing the pirates.  “Those were the appropriate measures under the circumstances.”  Elsewhere, a Canadian admiral alluded to mysterious legal difficulties.  “There's the rule of law that needs to be applied, so we're not currently regularly detaining them, no. There are all kinds of challenges with that.” 

Now, I can understand why a country would fear becoming a dumping ground for pirates ... but it isn't as though hundreds or thousands of them are being captured every year.  Nor is organizing a piracy trial under normal criminal rules all that difficult.  (And they have, by definition, been caught red-handed.) 

So, Canadian readers, I ask you, what the hell?

Yet another modest proposal, in which I outrage my friends by advocating protectionism but please Canadians and Mexicans by saying it shouldn't be aimed at them

  The new stimulus bill requires that all steel be purchased domestically. Brad Delong is unhappy:

“If there's little excess capacity in the U.S. steel industry — so that the price of steel is high enough to induce people to look outside for suppliers — then a stimulus won't be much needed. If there's a lot of excess capacity so that a stimulus is needed, then steel customers should be able to bargain prices down to marginal cost — in which case foreign producers will have an extremely difficult time competing on price given that steel is heavy and distances are great.”

Well, maybe. Marginal cost can vary a lot, and there are two steel-producing nations whose companies enjoy almost as good access to American markets as their American competitors: Canada and Mexico. The price of the same product imported from the two countries varies between 14% and 65%.  (December price data below the fold.) Meanwhile, China has achieved significant import penetration, despite prices which exceed Canadian ones by 40% on average, and by 11% in the chief product category China exports to the United States. The implication is that American firms are high cost.

Normally, the fact that U.S. firms are high-cost wouldn't change anything. It would make sense to buy the cheapest steel from wherever. American consumers would save by going to the lowest cost producer, and Americans as a whole would be better off, even if American steel producers would suffer. 

Under depression conditions, however, I'm not sure the above logic still holds. Under depression conditions, using public money to buy from domestic high-cost producers has three advantages that don't mean anything in normal times. First, domestic high-cost producers will spend more of their revenues, not park them as saved profits ... after all, they have high costs! Second, the workers and suppliers of American steel companies (who make up the chief costs of the domestic producers) are far more likely to spend their wages and earnings on American goods and services than their foreign counterparts, keeping the multiplier higher than it would be otherwise. Finally, having steel mills shut down in American towns and American workers thrown out of work will have psychological costs for American consumers and businesses. They could worsen the downturn.  Such costs will be much less if the workers being tossed on the dole are in Ontario or Hebei. In short, when American resources are unemployed and their unemployment looks set to last, buy-USA provisions can make the country better off as a whole.   

More below the fold.

Department of WTF

  This is bizarre.  And this is really bizarre.  Can anyone explain to me why people would write such nonsense?  Please?  I really want to understand.

The country of the future

  Randy McDonald pointed out this odd article about Brazil in the Globe and Mail.  The author lauds Brazil as a particularly good exemplar of economic management over the past few years, while blasting Canada: 

“On the other hand, Canada should have done much better too: Our economy grew dramatically, fuelled by a new resource boom, and our banks stayed on a short leash, so none failed.  But for the most part, we were among the champagne-sprayers. Our wealth fund, which shamefully lies in provincial hands, is needlessly tiny. And a decade of lacklustre government spending by both parties has robbed us of the chance to become a world leader: Our measures of equality and poverty are no better than they were at the beginning.” 

To which I respond:  bollocks!  (I like that word.  I don't think I've ever actually spoken it.  I don't think anyone in the United States has actually naturally spoken it since 1892, although I have been known to say “bollixed up.”)  Brazilian economic management has been fine, but not exemplary, whereas Canada has done everything it was supposed to do. 

Point #1:  yes, Brazil paid off its debt to the IMF.  Very nice ... but Canada never had any IMF debt to pay off.

Point #2:  yes, Brazil reoriented its social spending to bring real results in improving public health and reducing malnutrition ... problems Canada does not have.

Point #3:  Between 1998 and 2008, Brazil managed to hold its net federal debt to 25% of GDP.  It also managed to redenominate most of its debt into its domestic currency.  Both excellent accomplishments.  But Canada's debt was already denominated in its own currency, and in the same period Ottawa reduced the federal debt from 63% of GDP to 30%, a much more impressive accomplishment, and exactly what the author accuses Canada of not doing.   

Two more points below the fold.