Thursday, 31 March 2011

Why Selinger is Falling


Greg Selinger: Current NDP
 Premier of Manitoba.

Image Source: flickr

Hugh McFadyen is going to be elected the next Premier of Manitoba later this year. The New Democratic Party of Manitoba has slipped increasingly in the polls since 2010. Much of this isn't due to policies per se (though being in government when many governments are experiencing a cyclical deficit does hurt) so much as style. Greg Selinger does not have the look of a charismatic and confidence inspiring man; he's too dull and wonkish.

There are many voices in Winnipeg's Rightwing blogsophere, like the Black Rod or the Blue Rod, who pontificate on how NDP overreach is the cause of this decline. These ideologues are spouting utter nonsense, similar policies under Doer didn't induce a peep as much complaint as seemingly minor gaffes (like naming a lake after a hockey player ... wait for it ... before another landmark was to be automatically named after a dead soldier!) from Selinger do.  

Poor public relations and a Stephane Dion-like, wonkish aloofness explains some of the NDP's slump, but there are a few other factors.


1. Manitobans want a change in government about every ten years.

Gary Doer said it best in a Winnipeg Free Press interview with Dan Lett:

Last April, the two leaders [Doer and Harper] were sharing a quiet moment on a plane to Churchill for a funding announcement when the topic turned to the shelf life of politicians. Both men agreed good politicians were always on the lookout for signs they had worn out their welcome.

"We were talking about our families, sports and politics in general. One of the things I said to him was that I have always appreciated people who could get out on their own terms. I always thought that 10 years was about right in terms of getting ready to leave. I've seen too many good people making speeches and not being able to leave on their own terms."
So, according to Doer, the average shelf life of a good politician is ten years. In Manitoba it would probably be reasonable to extend that to the average shelf life of a government. Gary Doer was getting out before the voters' made him and he was passing command of the soon-to-sink ship to the uncharismatic Selinger.

2. The Cyclical Deficit

In recessions governments across the world experience higher than average deficits. Even jurisdictions that are doing relatively well face higher annual budget deficits. This is because there isn't as much business activity, hence less profits and thus less revenue from business taxes. This relatively simple phenomena has reared it's ugly head in the UK, during the end of the Brown government, in the United States during the Bush-Obama transitional years where the already large annual budget deficit ballooned, in Canada (where a projected surplus was turned into a deficit in a matter of months), and in the Province of Manitoba. When the economy is in full health again and the government is collecting normal amounts of tax revenue such deficits will decline. Unfortunately, the RAG Machine doesn't seem to understand this concept.

Tom Brodbeck of the Winnipeg Sun, for instance, has screamed at the Province's "irresponsibility" in racking up the deficit through "wasteful spending" on "government bureaucracies" and "administratiors who have hijacked the health-care system". It is somewhat ironic to hear Brodbeck talk of cutting "administrators" rather than front-line services, as that's the oldest austerity trick in the book - demonize the civil servants tasked with running the system, reduce their resources, and cut the services when you find out the administrators actually are necessary (full disclosure: one of my relatives is an evil WRHA HR person). The supposed "bureaucratic elite" is a very easy target for shameless Rightwing populists like Brodbeck and his ideological kin south of the 49th parallel.

Whatever it's paucity, deficit fear-mongering works. It tends to work really well when applied to centre-left parties, which are supposedly "spendthrift" (regardless of what the actual record shows). This has damaged Selinger in the eyes of many potential voters.

3. The Cult of Doer's Personality

It cannot be emphasized enough that with 21 years as Leader of the Manitoba NDP Doer shaped the party in his image. It became less of a bottom-up, mass-membership driven party and more of a leader (and party elite) driven one. Much of the NDP's popular appeal wasn't based on policy or interactive voter education so much as "Doer seems like a nice guy". If you remove the centre of political gravity, this whole personality-centric system collapses. And that's what's happening.

Because of all this it's overwhelmingly likely that McFadyen will replace Selinger. The deck was stacked against Doer's successor and the defeat couldn't happen to a nicer guy. Nevertheless, this shows the perils of building a party on personality and lacking a clear vision for the Province. And, with McFadyen's round of austerity, privatization, and union busting likely to come next year, the Province will desperately need a social democratic alternative.

Tuesday, 22 March 2011

The Gods noticed this blog!

I’m sorry for the absence - a week of cold weather, the stomach flu, and pilling up projects can divert a blogger’s attention. There have been some interesting developments since I last posted, namely that the Progressive Economics Forum has been kind enough to include me on their list of links.

For those who don’t know, the Progressive Economics Forum is undoubtedly the largest blog dedicated to providing a progressive economic analysis of social issues Canadians hold dear, like social equality, fighting poverty, union rights, and education. The Progressive Economics Forum is also the network of 125 economists (some of whom run the Forum’s blog) from across Canada who provide research that counterbalances the conservatively anchored perspective many policy advising economists share. It’s quite nice to be on their link list.

And there have also been some inroads in the Winnipeg blogosphere, as Gauche Manitoba has also been kind enough include this blog on its blogroll.

Oh, and more will be coming on the Hugh Grant study and the RAG Machine's reaction to it!

Wednesday, 9 March 2011

Imperfect Information: Another Consequence for Rental Markets

In an earlier post I explained various problems with the hidden, unwarranted assumptions in standard Free Market fundamentalist denunciations of rent controls. Namely, that no market is perfectly competitive because, no matter how many firms are in a given market, they won't all be selling the same good and buyers don't know everything about the product - that is to say that buyers have imperfect information.

A lot of the really cutting edge work in economics right now is being done by theorists who assume imperfect information or information asymmetries (some people knowing more than others). Joseph Stiglitz is one such person and has provided an example of how a firm could raise prices to a very high level even in a very competitive market:
In some cases it has been shown that even though there are many firms, prices might be raised to the monopoly level even when search costs are very small. To see why, consider a case where all firms charged the same price. If any firm were to raise its price just a little—by an amount less than the cost to customers of switching to another firm—that firm would lose no customers. Thus, so long as the price is below the monopoly price, it pays that firm to raise its price by a little. But it pays each firm to do so: all raise their prices—and the process continues until the monopoly price is reached.
So, a landlord could raise the rent $5 above the "best price" realizing that searching for a cheaper apartment would cost a tenant $5.45. Several other landlords could do likewise. All these landlords could do this again, realizing that searching for another rental unit would cost a person $5.45 (in spent energy and time). These landlords could continuously do this until rents were at obscenely high rates per month.

The costliness of finding a new home would hurt poorer people in particular, given their more limited resources and (in quite a few cases) smaller social networks means it'd be more difficult for them to find new apartments. Furthermore, since few if any property developers build rental units for the "low income rental market", there would already be less competition in that sector.

Sunday, 6 March 2011

Imperfect Competition

NOTE: All curves should be straightly downward facing or upward facing. The gaps or "imperfections" in them are solely due to yours truly's status as an novice when it comes to making supply and demand curves on excel.

A lot of words have been shed over the new rent control study, conducted by Dr. Hugh Grant. The RAG machine, particularly the Frontier Centre for Public Policy, has been spewing out much venom over this inconvenient study. So, before addressing their claims I think it'd be nice to explain to the readers of this blog some basic concepts relating to the debate.

PERFECTLY COMPETITIVE MARKETS

The average economic opinion columnist, particularly the average Rightwing economic opinion columnist, typically bases their arguments on something called "Perfect Competition". Perfect competition is mentioned in first year microeconomics courses as an example of a really, really oversimplified model for understanding the economy.


Figure 1: A perfectly competitive (and nonexistent) rental market.

The model assumes that there are many hundreds of thousands of small firms selling completely identical goods. So, hundreds of thousands of pencil businesses selling identical pencils (same thickness, same composition, same lead, etc), hundreds of thousands of soda pop businesses selling the exact same soda (same colour, same flavour, same packaging, etc), and hundreds of  thousands of rental businesses selling exactly the same type of apartments!

Because there is so much competition an individual firm can't charge more than the optimal amount - the point where the supply and the demand curves meet.

DEMAND, SUPPLY, AND WHERE THEY MEET


Figure 2: Quantity of rental units demanded for each given price of rent. This is a demand curve for "the industry" as a whole (see figure 5 for an individual rental firm's demand curve). Numbers are not based on empirical studies, for demonstration only.

Image Source: Created by The Analyst
 In a perfectly competitive rental market landlords would charge rent and the higher the rent, the less tenants they would get. The lower the rent, the more demand for apartment units there would be (see figure 2). Conversely, the higher the rent the more supply of apartment units there would be, as landlords would be more eager to sell more if there is more profit to be made (see figure 3).


Figure 3: Number of rental units supplied at each price of rent. The higher the rate of rent, the more landlords are willing to supply. Numbers are not based on empirical studies, for demonstrative purposes only.

Image Source: Created by The Analyst

 In this Free Market Utopian's dream world, landlords would be constrained by the fact that the higher the rent they charged the less tenants they would sign up because, in a world with hundreds of thousands of other competing landlords selling the exact same apartment units thousands of others would be offering a much better rate and prospective tenants would be flocking to them.

So in this uber-simplified universe, the demand and supply curves would meet at one point, the equilibrium point. This point would represent the best possible price, the optimal rate, at which both a given amount of landlords and a given amount of tenants are satisfied. A landlord couldn't possibly charge above this point, because hordes of tenants would, as stated earlier, flock to other landlords. If some government agency, like the Residential Tenancies Branch (RTB), tried to force the rent charged below this "equilibrium price" (a move economists call installing a price ceiling) then less landlords would rent and there'd be fewer possible units for prospective tenants to rent.
Figure 4: In a perfectly competitive market, charging less than the equilibrium price causes shortages, as not as many landlords will supply as many units as there are tenants demanding.
 In figure 4, for instance, at the "best price" of $24 per month, 75 000 apartments would be rented out by landlords to tenants. If the RTB nefariously tried to reduce the rent, through legislation, to $16 per month, then only 37 000 rental units would be provided. Tenants would struggle with each other, waiting in long lines, to get an apartment and landlords would be choosy, picking only the very "best" candidates to rent their apartments ("best" being in the eye of the landlord -i.e. no bad credit history, very quiet, lacking noisy children, etc).


Figure 5: A given landlord, let's call him "Mr. Smith", cannot charge more than the equilibrium price of $24/month. If he does so, prospective tenants will look elsewhere to the hundreds of thousands of other landlords selling the exact same apartment unit.

Image Source: Created by The Analyst


ONE MORE ASSUMPTION: PERFECT INFORMATION

Oh, there's one more assumption perfectly competitive models employ. Tenants and landlords have access to perfect information. The landlord knows everything about the tenant (in terms of their characteristics as a tenants). For instance, landlords know if tenants won't pay rent in twelve months or have an impulse that leads them to smashing the walls. Tenants, in turn, know everything about the unit they are renting - exactly how large it is, exactly what type of wear and tear it can take, how good the walls are at blocking out noise, and whether or not the landlord will fix a leaky faucet or toilet in twelve months.

IMPERFECT COMPETITION

Why rent control is even considered is because markets are not, never have been, and never will be perfectly competitive! There will never been thousands of landlords renting out exactly the same unit, tenants will never know everything about landlords and landlords will never know everything about prospective tenants. There will always be information asymmetries (some people will know more than others) and market power (this enables a buyer or seller to charge or ask for a price below or above the "best price" or "equilibrium price"). 

Many standard theoretical economic models of rent control assume something approaching a perfectly competitive market. However, if there is only one rental firm (monopoly), a few (oligopoly), or many selling slightly different units (monopolistic competition) then matters can be drastically different. In any of these situations it's possible for landlords to charge more than the equilibrium price.

One peer-reviewed paper, by Richard Arnott and Masahiro Ignarashi in the Regional Science and Urban Economics journal, relaxed the assumption of perfect competition. They looked at what it would be like if rental units were slightly different (or, have "idiosyncratic characteristics") - a monopolistically competitive model.

 The model employed was simple. Housing units cost the same but differ in idiosyncratic characteristics; similarly, households are identical except for idiosyncratic differences in tastes. As a consequence, a household will like some units more than others, and the longer and the more effectively it searches the more likely it is to find a unit that suits its tastes well. ..

Because search is costly and housing match quality is idiosyncratic, landlords have market power which they exploit by pricing above cost. The vacancy rate adjusts so that zero (expected) profits are made in long-run equilibrium. The uncontrolled equilibrium vacancy rate is inefficiently high. Thus, a reduction in rent below its uncontrolled equilibrium level is welfare-improving; mild rent control is beneficial...
However, they urged caution and pleaded that people look at local conditions (as Hugh Grant did) before applying any given model.


REFERENCE
Arnott, Richard, and Masahiro Igarashi. 2000. Rent Control, Mismatch Costs, and Search Efficiency. Regional Science and Urban Economics 30: 249-288.

Wednesday, 2 March 2011

Political and Labour Economists are not to be trusted!



Political economist/ evil leftwing statist Adam Smith.


 Joseph Quesnel is a policy analyst for the hard Right "independent" Think Tank known as the Frontier Centre for Public Policy. Over a week ago he gave his two cents in the Winnipeg Sun ("Rent control deserves one more study". Quesnel, Joseph. Feb. 18, 2010) on a provincially commissioned rent control study by economist Hugh Grant. The study found that rent control, as instituted in Manitoba, does more good than harm.


The FCPP has been quite furious over this study, keen to point out potential conflicts of interest. I intend on dealing with the irony of these charges in the upcoming days. But one line of reasoning Quesnel uses is particularly amusing.

The fact the professor of economics who compiled the report is a specialist in labour and political economy also suggests he may have a predisposed view towards the government’s statist outlook.

So, among the numerous academic disciplines that are no longer trustworthy to Rightwingers, we may now add "political economy" and "labour economics".

Gosh, perhaps even Business schools will get on the Right's "academic enemies list".

Tuesday, 1 March 2011

What's at Stake in the 'Peg

Like many Winnipeggers, I am aghast to see the direction my hometown has taken over the last several years. Increasingly, the core is hollowing out and inequality is growing. Urban sprawl has stretched our frost-bitten infrastructure to its limits. Violence and racial discrimination continues to affect members of the underclass in the North End. The Sam Katz administration has seen important public services partially sold off in the form of inefficient "Public-Private Partnerships" or P3s (corporate handouts, really). Federal and municipal conservatives have cut funding to effective anti-Gang programs, aboriginal organizations, and a murdered womens' database with one hand, while diverting millions to faith-based evangelists like Youth For Christ with the other. Times have changed quite a bit in Winnipeg, and mainly not for the better.

But much of my horror is at realizing how much worse things could get. As someone with an interest in American politics I have watched with amazement as "issues" like whether the President looks into a teleprompter have taken centre stage while self-conscious charlatans like Glenn Beck are paraded around as prophets by the far-Right. This horrible state of affairs came to The States through one vehicle - a massive, rightwing corporate media machine that distills 24 hour manufactroversies. To my horror, I see a similar vehicle developing in Winnipeg in particular and Canada in general.

In Winnipeg one has only to listen to Charles Adler rattle on about some triviality on CJOB, pick up a copy of the Winnipeg Sun, or read the latest press release from a hard Right "independent" Think Tank like the Frontier Centre for Public Policy to get a taste of this. Rightwing media outlets and corporate funded propaganda mills like the Cato Institute have misinformed Americans for decades and the model has been transplanted to Canada.

Sun Media's national editor, Mark Bonokoski,  even said "[Bill] O’Reilly represents the fearless tone Sun News Network should emulate"*. Conrad Black created a media empire that was firmly to the Right, Izzy Asper created an ultra-blue Liberal media, and David Asper has turned the inheritance of his father's empire into a blue Conservative media machine. 17 out of Canada's 18 national dailies endorsed the Conservative Party of Canada, a political party that currently only has just over a third of the Canadian electorate on its side.

With the excessively centrist NDP provincial government expiring shortly (the PCs will almost certainly win the 2011 Provincial election), there is no time more urgent to combat the swaths of Rightwing disinformation in this city.

With all these stakes in mind, I decided to make a place where Rightwing, Absolute Garbage (RAG) articles and statements get thoroughly trashed. Hope you enjoy the fun.

*In wake of accusations that the commentator should "tone it down" after the Arizona shootings.