Wednesday, April 25, 2012

My Norwegian Dream

I've written here before about one thing Norway does very well: managing their sovereign wealth fund.  But Norway does a lot else really well and this came to light in a recent discussion I had with my first year pharmacy student.

He was totally incredulous when I told him I am typically an NDP supporter in federal elections, and usually in provincial elections, although I will admit to voting PC this time around.  He didn't understand how someone who is in a high tax bracket and is pro-business could also support the NDP, a party that many mistakenly assume is in bed with Communists.  He then threw out a common refrain voiced by those who oppose the NDP.  "You know if they ever came to power you can kiss half of your paycheque goodbye, right?" 

It is a commonly held myth that democratic socialism means less disposable income.  While it is true that, in general, nations governing by this dictum often have higher personal tax rates, that does not translate into less disposable income.  If everyone throws a little more money into the pot and that is efficiently and intelligently used to pay for services for the entire population, a practice which often reduces the price of providing those services due to the impact of bulk purchasing power, then a larger portion of the remainder of the paycheque is available for wants, not needs. 

But my student is an intelligent young lad so he deserved a well thought out response.

So here it is.  I analyzed the most recent data from the OECD for the following countries: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, United Kingdom, and United States.  I analyzed disposable income per capita, government expenditure as a % of GDP, VAT rate (similar to GST; basically sales tax), total government tax revenue as a % of GDP, total personal tax wedge, Gini coefficient, Human Development Index, and various income tax figures after he made a comment about the impact of taxation on higher wage earners.  I looked at the income tax rates of singles and married couples in the highest tax brackets, looking at the base rate, base rate plus social security contributions, and marginal rate, or the percentage in tax paid on the last $ of earned income.  (If you are a sucker for punishment, feel free to ask me for the original data).

I wanted to see how each factor correlated with three other factors: disposable income per capita, Gini coefficient, and Human Development Index. 

Disposable Income Per Capita most strongly correlates with the income tax level on singles and married couples in the highest earnings bracket.  As well, as you can imagine, it correlates quite strongly with HDI, as the more money people have to themselves, the more developed a nation is likely to be.  The other correlations are quite weak aside from a moderate correlation between disposable income and total government tax revenue.  This may not be intuitive but when individuals pay more taxes, they are essentially being forced to save their money by spending it into a pool that is used to purchase services for the whole population.  Thus, they have to pay out of pocket for fewer goods and services and thus a larger percentage of what they earn is disposable because their needs are taken care of by the tax pool.  As an aside, the Gini coefficient correlates negatively with disposable income per capita, which makes sense, because as disposable income goes up, the Gini coefficient goes down, representing movement towards perfect equality.  This stands to reason since the more free money people have to spend PER person, the less likely it is that all the earned income in that nation is concentrated in the hands of a few.

Right away, the data conflicts with the preconceptions of most Canadian conservatives.  They would have you believe that if the government collects less taxes, we will all have more money in our pockets.  I hate to cloud the issue with facts, but it doesn't appear that way, at least not in the 28 OECD nations I analyzed. 

How about Gini coefficient?  What makes a country equal?  There is a very strong correlation between government expenditure as a % of GDP, total government tax revenue, and total personal tax.  Again this stands to reason as the more is put in tax coffers and then spent on the population, the more likely is equality.  This also holds for the tax rate paid by the highest wage earners.  Also makes sense since the more tax we take from them, the more we spread the love throughout the country.

What about HDI?  There are almost no strong correlations here EXCEPT the income tax rate on the highest wage earners, whether they be single or married.  So it seems the more we tax the highest wage earners, the more developed our nation is.  Even when I ran a regression analysis and took out the impact of all the other factors and looked at the impact of these rates alone, rate of income tax collected from highest wage earners in a country is still significantly positively correlated with HDI.

Now to top it all off.  Where does the United States, that bastion of free market capitalism and the poster child for fiscal conservatives everywhere, stand in the rankings for the various factors? (Out of 28 OECD nations)

1.  Disposable Income Per Capita: 3rd
2.  Government Expenditure as % of GDP: 23rd
3.  Tax Revenue as % of GDP: 27th
4.  Total Personal Tax Wedge: 21st
5.  Gini coefficient: 27th (it is only less unequal than Mexico)
6.  12th highest income tax rate for high earning singles
7.  About middle of the pack for the other high earning tax figures
8.  HDI: 4th

So, since the disposable income per capita is quite high, but the Gini coefficient is so high, it stands to reason that large amounts of wealth are concentrated in the hands of a small percentage of the population.  This drives the DIPC up but is not shared equally.  For someone like Warren Buffett or Bill Gates, that is fantastic news.  But for the average Joe/Jane, not so great news.

Is there a better way?  In my opinion, yes.  Sure, if you want to make lots of money as a balls to the wall entrepreneur, you are best off in the States.  But if you are just a regular Joe working in a profession or trade and trying to raise family, that doesn't mean a hill of beans to you.  Which nation has the highest DIPC, highest HDI, and lowest Gini coefficient? Norway

Their DIPC is more than $5000 MORE than the US.  So instead of the general population making peanuts but a few people making buckets of money, everyone makes a decent living.  And they are not even that reckless with their tax and spend policies.  They are only the 16th highest spending government, have the 5th highest tax revenue, and "burden" their citizens with the 14th highest total personal tax wedge. 

Just to make their system more attractive they also elect their legislative representatives by proportional representation.  And they get around the mess that could create in Canada by, believe it or not, working together.  Weird right?  How do they do this?  Legislation that says their parliament CANNOT be dissolved in the four-year span between fixed-date elections.  So if you can't agree on something, you are going to work together until you get it figured out.  Because you are stuck with each other for four years.  THAT is what we need to do in Canada.

Don't get me wrong.  I love Canada.  Always have, always will.  But over the years the impression has been creeping across the border that we need to take all the power away from government and leave as much money in the pockets of wage earners as possible.  This is thought to be the only way to true success and economic prosperity. 

Nations like Norway, Sweden, Finland, and Denmark show us that there is another way.  It is time we start taking some of their great ideas and working them into this amazing country we have to make it all the better.  Who wouldn't love to see Canada one day sitting with the highest disposable income per capita, HDI rating, and income equality?

Tuesday, April 24, 2012

Holy crap how wrong was I?

If you recall my election prediction fun, it is quite obvious that I am terrible at predicting outcomes of elections.  I was WAY off on my seat predictions, as was pretty much everyone else.  And of the 10 bonus questions asked I only got 5 right.  Fail. 

Sunday, April 22, 2012

Election Prediction Fun #2

Now this is more to show the uselessness of public opinion polls and seat projections.  I will post the final polling results and seat projections from numerous sources, all of which were published here except the Forum poll which was published here.

First off, the popular vote percentages.

Party Leger Think HQ Campaign Abacus Forum Average
Wildrose 42 41 41 41 41 41.2
PC 36 33 34 31 32 33.2
NDP 10 11 11 13 13 11.6
Lib 9 11 11 12 10 10.6
Other 3 4 3 3 4 3.4

Now, for the even more shaky art of seat projections.  These come from Forum, Threehundredeight, and Daveberta average pool responses.

Party Forum THE Daveberta Average
Wildrose 62 45 42 49
PC 19 37 37 32
NDP 4 4 4 5
Lib 2 1 3 1
Other 0 0 1 0 

Using the Hill & Knowlton Election Seat predictor tool, I've arrived at my own seat projections using the various poll firms voting intention data both on a whole Alberta basis and a regional basis.  Both of these methods yield a slim Wildrose majority, varying in composition based on full province data or regional data.

Full province data yields the following:
Wildrose 47
PC 32
Other 0

Regional Data yields the following:
Wildrose 46
PC 29
NDP 10
Lib 2

However, of course, all of this information is based on decided voters.  The undecided will determine the fate of our province.  The H&K election predictor allows you to see the impact of votes swinging from one camp to another.  Let's evaluate a few scenarios based on province-wide data.

1.  Half of Liberal leaning voters vote PC to stop a Wildrose government from forming
Minority Wildrose government with 43 seats, PC 37, NDP 7

2.  Half of all NDP leaning voters vote PC to stop a Wildrose government from forming
Wildrose majority with 44 seats, PC 41, NDP 2

3.  Half of Liberal and half of NDP voters vote PC
PC majority at 45, Wildrose 40, NDP 2

4. 100% of Liberal voters toss their support behind the NDP
Still results in a Wildrose majority

5.  NDPers listen to Raj Sherman and toss all their support behind him
Still a Wildrose majority

So you can see from this that there are only two scenarios where Wildrose does NOT form a majority government.  Either Liberal voters swing in large numbers to the PCs, or both Liberal and NDP voters swing to the PCs.

So, given all this, and that a good 20% of those planning to vote are currently undecided, and of those, more are leaning toward the PCs, I am predicting a close Wildrose MINORITY government.  After looking at all this I still stand beside my original predictions for the Daveberta election prediction pool posted here.  

I will post how well all of these aligned with the actual results after the election as well as the results of my alternative election

I know, you can't contain your excitement.  It's okay.  I totally understand.

Election Prediction Fun #1

I know.  It's an oxymoron.  But some of us do consider elections to be fun.  Hence, my reason for posting this.  I have done various election predictions and will post the results below.  After the election, I will see how terrible I did. 

The Daveberta Election Pool

I entered an election pool over at  Not really for the prizes, which are nerdy politics books, but just for shits and giggles. 

Here are my responses to his questions.

Number of MLAs elected by each party (total: 87 MLAs)
Alberta Party: 0
Liberal: 1
NDP: 5
PC: 40
Wildrose: 41
Other: 0

1. The constituency where the PC candidate will earn their highest percentage of the popular vote: Griffiths: Battle River-Wainwright
2. Will PC MLA Ted Morton be re-elected in Chestermere-Rockyview? No
3. Will Premier Alison Redford be re-elected in Calgary-Elbow? Yes
4. Will Liberal Party leader Raj Sherman be re-elected in Edmonton-Meadowlark? Yes
5. What will the highest vote percentage for the Alberta Party be in a riding? Lacombe-Ponoka
6. Will either Allan Hunsperger (“gays burn in hell”) or Ron Leech (“being white is an advantage”) win their seat? No
7. Who will be elected in Edmonton-Glenora? Ray Martin-NDP
8. Which party leaders will announce plans to resign within 48 hours of the vote? Redford
9. How many of the 3 senate positions will the Wildrose Party win? 0
10. Who will get more votes – Liberals or NDP? NDP     

Wednesday, April 18, 2012

My alternative election wish

As I have done for pretty much every election in my living memory, I am going to analyze the results of this provincial election in a different light. I envy the people of New Zealand, because as far as I am concerned they have one of the fairest, simplest, and most representative voting systems in the developed world.

Here is how it works.

The national parliament is divided into thirds. Two-thirds of the seats are constituency seats. One-third are called list seats. When a voter gets to the ballot box, the ballot would look something like this, using my riding as an example.

1. Choose your preferred candidate.
Forsyth, Alan-Wildrose
Laurin, Wanda-NDP
Oberle, Frank-PC
Tardif, Remi-Liberal

2. Choose your preferred party

You get two choices on each ballot. So, for example, in my riding, if I really liked, say, Mr. Oberle, the incumbent, because he is a hard-working, honest MLA, I could vote for him but still support the, say, NDP party. Just a hypothetical here.

Then, this is how the results work. They add up the votes for all the parties to arrive at a popular vote percentage. Using a mathematical method called the Saint-Lague formula, they allocate the number of seats each party is allotted as a percentage of the total seats in the Parliament. The formula just allows for equal allotments of seats and avoids rounding errors in favor of one party over another.

Now, in each constituent riding, whoever gets the most votes wins. So, let's say the PCs got 30 members elected in their constituencies but their popular vote allotted them 4o seats. They would now get 10 extra members elected into Parliament in the list seats. These would be taken from a prepublished and predetermined "list" posted by each party before the election.

Here is how I see this working in Alberta and how I have set it up to analyze the results after election day and come up with an "alternative" Legislature in Alberta.

I've taken each of the 87 ridings in Alberta and come up with an alternative alignment. It is rough and if it was ever done more strict criteria would be involved. I basically just took the 3 closest by geography. So let's say 3 Northwest Alberta ridings as an example. They would be lumped together, then split in 2. Those 2 ridings would be 2 constituent seats. The whole of the 2 ridings would be a list seat. So the people in each riding would have an MLA for themselves, and then 1 list MLA would oversee the larger area represented by the 2 ridings. The 2 constituent MLAs would be voted in as they are now. The list MLA could come from a predetermined list or they could look at the candidates for each party with the highest levels of popular support province-wide and give out the list seats remaining for each party in descending order of support gained.

So this is what I shall do. I will look at the results in each riding. Whichever 2 candidates get the highest percentage of popular vote in their ridings will be my "constituent" MLAs in those 2 ridings out of the 3 I lump together. The remaining candidates will go onto the list.

I'm interested to see how this method will realign the seat allotment in Alberta and also the MLA makeup in the Legislature. It is only a completely nerdy academic exercise on my part, but I hope to see a proportional representation system similar to that used in New Zealand adopted in Alberta some day, and, more hopefully, across Canada.

Wednesday, April 4, 2012

Alberta Heritage Fund in disrepair

Below is an e-mail I sent to Danielle Smith, leader of the surging Alberta Wildrose Party. As they look poised to form Alberta's next government, their policies and announcements need to be analyzed carefully. As you'll see below, at least one of these policies, although very popular among some voters, is shortsighted and not what I expect of my political leaders.

Dear Mrs. Smith:

I initially read with great interest and excitement your proposal to finally bring the Alberta Heritage Fund to a respectable level. I was confused and disappointed when I later read your proposal to pay a $300 "energy dividend" to every Albertan.

The mindset that initially drove Ralph Klein to give us all "prosperity cheques" is no different than the one behind your announcement to pay us each $300. It is, no doubt, the same mindset that has flourished under 40 years of Conservative rule in this province and led to the pathetic current market value of the Alberta Heritage Fund. The fact that you announced it as a key policy plank leads me to believe that Wildrose rule may be no different, and that disappoints me. I found your policy platform very well thought out and not as "right wing" as many claim your party to be. But to implement this $300 policy would be evidence that your party knows nothing of responsible governance or fiscal management and thus, are no different than the Conservatives.

What you, Ms. Redford, Mr. Mason, and Dr. Sherman all need to hear is that the people of Alberta elect our government to make difficult and complex decisions on our behalf for the betterment of our province and its future. If you want to give us each $300 per year, lower our personal income taxes. Taking the money from us and then giving it back is not only a huge administrative expense but brings into question our leaders' creativity and passion for future generations. It takes a real leader to think beyond their lifetime and invest for the future. That is exactly what the leaders of Norway have been doing since 1990. And by every measure imaginable, the Alberta Heritage Fund is an absolute embarrassment compared to the Norwegian sovereign wealth fund.

If you consider Alberta as a unique political entity, our Heritage Fund lags Norway's as a percentage of government revenue, government expenditure, GDP, annual petroleum revenue, and dollars per capita. It is even more embarrassing to learn that the Heritage Fund's inception was in 1976 while Norway only started in 1990. Even with that temporal handicap the latter has a full $500 billion more in value. Even considering equal starting points, an aggregate average of all the measures for Norway's fund would suggest that ours should contain $211 billion by now had our leaders been as responsible and forward-thinking as those in Norway.

What if the Conservatives of 1976 invested $300 in 1976 dollars (roughly $75) for each Albertan (1.8 million at the time) in the Heritage Fund, and continued to do so until now? At a very modest growth of 3% per year and converting it into 2012 dollars, it would put the value at $33.8 billion, double its existing value. Instead, it looks like we've invested only $250 million in 2012 dollars for 35 years, only 0.71% of total government revenue. Clearly we can AND must do better.

Think, Mrs. Smith, of the legacy you could leave if you were to abandon your reckless proposal and focus on bringing the Heritage Fund to its fair value? Your original proposal of $200 billion is right on the money. This would be a Heritage Fund to be proud of. This would show fearless and intellectual leadership. The hard working people of Alberta deserve nothing less.