Twenty Fallacies

[Riverwind]

I suspect I have avoided your question since cell phones are somehow different from collecting trash.  Well, how would a trash collector earning $1/hour be able to pay rent in any Canadian city?  For that reason alone, and until we find a technological fix, trash collection is likely to be an expensive proposition.

That is my entire point. There will always be jobs that must be physically done in this country. Restrictions on immigration reduce the supply of job candidates and increase the wage costs. These costs mean the cost of living in Canada is much higher than in countries like India and China. In other words, restrictions on immigration subsidize the wages of people collecting trash in the same way quotas on clothing subsidize the wages of people working at Canadian textile factories. The additional costs translate into a higher cost of living in Canada which undermines our ability to compete with competitors overseas. If we had unrestricted immigration the cost of living would fall to the point where someone would be able to live on $1/hour. Of course mass poverty, crime and other social problems would be an inconvenience - but we all would be richer so it must be good?

In short, if you oppose unrestricted immigration then you are not a true free trader. You are a conditional free trader: i.e. free trade is good as long as things that you care about personally are not negatively affected. This is not a bad thing - in fact I believe most people feel the same way - but it is important to recognize the difference because the discussion is not really about free trade or protectionism. It is really about deciding how much and what kind of trade will benefit Canadians the most.

[Guest eureka]

Trade is not cooperation. It is as it always has been, about seeking advantage. "Free Trade" would not have to be so bound with rules if it were cooperation. A sporting match it is not since the declared object of a sport is to produce a winner where in trade, there should be no loser although the weaker side always gets the smaller slice of the pie. Even so, it does gain from trade; just not evenly.

Free Trade agreements except for those inspired in Europe by the political needs to forge a union that would end European wars, have never been about trade. Trade between Canada and the US was "free' For more than 90% of goods produced by both countries before the agreements. They were about integrating capital markets and allowing greater freedom for corporate actors to achieve control of economies.

Free Trade with South America as just abandoned was about the same as NAFTA. More than 80% of products are already tariff free.

The "Free Trade" that has been foisted on us has never been about helping anyone or anything except corporate control of society. There has been no benefit to anyone as a result. It has been estimated that European Free Trade increased the overall GNP by about 1% and had no impact on standards of living. I have that in a book that I read years ago and don't recall which one, but it is fact. European Free Trade was purely political in inspiration - and validly so. It had, though to be sold to the nationalistic peoples as an economic benefit.

It is no different here.

[August1991]

Trade is not cooperation. It is as it always has been, about seeking advantage. "Free Trade" would not have to be so bound with rules if it were cooperation. A sporting match it is not since the declared object of a sport is to produce a winner where in trade, there should be no loser although the weaker side always gets the smaller slice of the pie. Even so, it does gain from trade; just not evenly.

eureka, trade and cooperation are synonyms. I help you, you help me, we help each other - and we both win. This is fundamentally different from a sports match or competition where you win and I lose.

A good marriage is like trade or cooperation; a bad marriage is like a sports match or competition.

Cooperation is a good thing for everyone; competition is a bad thing for losers, and often a bad thing for everyone. (Think of divorce, war.) So, we often cooperate to respect rules about competition. (Think of the Geneva convention, divorce laws.)

Unfortunately, cooperation is prone to cheating too (as anyone who has tried to get volunteers to contribute time to a good cause knows).

I think that it is fair to say that humans, as a species, have wisely sought ways to cooperate, while admitting that competition is too often inevitable. I think that's what eureka means, and you too Thelonious:

Two people helping each other is 'communism' (anathema to 'free enterprise'), two people competing against each other for all each other has is 'free enterprise'. I realize that this is taking things to extremes, but I am not sure where you get your notions from.

Our greatest invention is mathematics, or rather prices. Prices gave us a way to say explicitly "I will trade 8 sheep for 3 horses." Only several thousand years old, this method of cooperation still causes great confusion. And unfortunately, it doesn't always work.

Weaker side always gets the smaller piece of the pie? Why should that be? When two people cooperate, how can you judge who benefits most? I think it is merely good that they both gain.

Two people helping each other is cooperation - it's what happens when you buy a coffee at Tim Horton's. Someone gets a job, and you get a coffee (and maybe some shareholder gets big dividends). Call it win-win-win.

----

In short, if you oppose unrestricted immigration then you are not a true free trader.

I say: permit free trade and no one will have to move to go anywhere. If Koreans could ship cell phones to us, why would they want to come to Canada to work in factories making cell phones? With free trade, we wouldn't need immigration.

People emigrate to seek jobs to produce something that often could be produced where they happily live. Why not produce it where they live now and send it to us from there, rather than come here to do the same thing.

IOW, trade barriers cause unnecessary migration.

(PS. There's another cause of migration. Free money.)

[Riverwind]

In short, if you oppose unrestricted immigration then you are not a true free trader.

I say: permit free trade and no one will have to move to go anywhere. If Koreans could ship cell phones to us, why would they want to come to Canada to work in factories making cell phones?

You are fixated on goods that can be produced anywhere in the world. Large pieces of our economy depend on services and goods that can only be provided within the country. Maybe that Korean is a steel worker that would like to make some easy money building venues for the 2010 olympics. Possibly, he would like to go cash in on the oil sands boom. Immigration laws prevent people from entering the labour market to compete for these 'immobile' jobs. As a result, the cost of getting workers to fill these jobs goes up and our entire society loses because the cost of living goes up.

With free trade, we wouldn't need immigration

Free movement of labour is part of free trade - in fact, movement of labour is covered under NAFTA - why would it be there if the authors did not recognize that restructions on the movement of labour are trade barriers? The same is true within the EU trade agreements. You are creating a false dichotomy by saying free trade means you don't need immigration: without free movement of labour you have no free trade.

[szkw1]

August you neglected to take into account that free trade also has an economic aspect and economics is the science of greed.

Free trade means that you can transfer goods freely butone side always gets the short end of the stick.

[August1991]

You are fixated on goods that can be produced anywhere in the world. Large pieces of our economy depend on services and goods that can only be provided within the country.

Fair point, but many services can be imported - or customers can travel to receive the service. In cases when that is not possible, the main cost is often the rent of being in the location itself.

A Korean steel worker may be cheap in Seoul but he'd be expensive in Vancouver since he'd only come if his wage covered at least Vancouver apartment rent.

Immigration laws prevent people from entering the labour market to compete for these 'immobile' jobs. As a result, the cost of getting workers to fill these jobs goes up and our entire society loses because the cost of living goes up.

I agree, in principle. But many "costs" are ignored in your calculation of the "cost of living".

Like it or not, we live in a Canada where, for example, rich people pay for poor people's health care. Within three months of immigrants arriving here, they are entitled to health coverage that would often cost them tens of thousands of dollars in their home country. I have met Americans who emigrated to Canada for this reason alone.

If I were a computer programmer in India with a young child requiring a costly, difficult surgical procedure, I would immigrate to Canada for this reason alone.

More broadly, as a Canadian, I don't see why I should assume the "cost" of helping foreigners who want to come to Canada, or even helping them discover whether they can find a suitable job here.

Free movement of labour is part of free trade - in fact, movement of labour is covered under NAFTA - why would it be there if the authors did not recognize that restructions on the movement of labour are trade barriers? The same is true within the EU trade agreements. You are creating a false dichotomy by saying free trade means you don't need immigration: without free movement of labour you have no free trade.

Free trade and free movement of labour are distinct ideas. With free trade, people need not move. But as you point out, free trade is not always possible. NAFTA and the EU have attempted to deal with free movement of labour.

Sparhawk, I won't avoid your question. I think it's a great thing that people can travel freely in the world. Canadians in particular should be grateful that our passport still signals to foreigners that we are honest people, and to let us pass without hindrance. At the same time, a country is like a club and I can understand why we would want to restrict membership - not for prestige, but for the practical benefit of current members.

----

August you neglected to take into account that free trade also has an economic aspect and economics is the science of greed.

Please define greed.

Free trade means that you can transfer goods freely butone side always gets the short end of the stick.

The proverbial fixed pie. Even Belinda knows how to make a cake.

[August1991]

Deleted

[geoffrey]

August you neglected to take into account that free trade also has an economic aspect and economics is the science of greed.

Free trade means that you can transfer goods freely butone side always gets the short end of the stick.

I was hoping you'd pick up on this one August because you have a way better way with words than I. But I just have to jump in. I'll probably make myself look like an idiot in the process.

szkw1,

You obviously don't realise the difference between economics and capitalism... this is the first flaw in your statement. Communism is a form of economics and obviously thats the science of 'sharing' or whatnot, anything but greed.

You've got a bad impression about our current system if you actually think its based around greed. In fact, capitalism is the most accurate method of spreading wealth based upon your worth to society.

This leads to what I would add as one of my fallicies that most people believe:

- All people are equal

That statement is fundamentally false. Some people are better than others and deserve more money, no other system compensations for this worth.

Free trade benifets all parties in the long long run. Patience is a virtue, give it some time. We are getting most of the benifets in the short run though!

[August1991]

Tenth Point: It is because individuals are different that it is wrong to generalize

That's a very good point about collective behavior. The madness of crowds often leads to irrational behavior.

Individual intelligence leading to collective stupidity has nothing to do with herd behaviour. Herd behaviour is when an individual chooses to do something obviously stupid solely because everyone else is doing the stupid thing. Lemmings jumping off a cliff is an example of herd behaviour.

My point refers to smart, clear-thinking individuals who, as a collective, do something brain-numbingly stupid.

Trees growing in a forest are a good example. Individual trees smartly and wisely seek sunlight. A collective forest is exceptionally dumb as it grows ever higher toward the sky.

This strange paradox between intelligent, individual behaviour and stupid, group behaviour has nothing to do with "herd behaviour". Trees in a forest aren't acting as a herd. Each tree is smart and doing the best it can. Indeed each tree could be identical to other trees, and smart. Yet the forest would still be stupid.

Generalizations are wrong because collective behaviour is different from the summation of individual behaviour. Collective stupidity has nothing to do with the fact that individual trees are different from one another. Every tree could be smart and absolutely identical to every other smart tree and the collective result would still be the same stupid forest growing ever taller to get sunlight.

The word "generalize" means to assume a group behaves like one individual in the group. It is common to criticise "generalizations" because, obviously, individuals are different and so a group is composed of different individuals. My point is that even if everyone in the group were identical, the group would still behave differently from the behviour of one typical individual.

"Generalizations" (conclusions about the collective) require far more nuance. (The Left really must get this idea right.)

[lost&outofcontrol]

You've got a bad impression about our current system if you actually think its based around greed. In fact, capitalism is the most accurate method of spreading wealth based upon your worth to society.

I don't want to jump in too deep in this thread for fear of making an ass of myself(I've only had micro and macro economics classes and that was enought for me )but like you said capitalism may be the best method for spreading wealth we have(I'm of a different opinion but that's me) but it's still doesn't mean it's doing a good job. Half the worlds population lives on less than $2 a day. The wealthiest nation on Earth has the widest gap between rich and poor of any industrialized nation. The 3 richest people on the planet have more capital than the 600 million that live in the poorest countries.

Like I said, capitalism may be the best system we have but it isn't doing a very good job.

linky

My two lefty cents.

[geoffrey]

You've got a bad impression about our current system if you actually think its based around greed. In fact, capitalism is the most accurate method of spreading wealth based upon your worth to society.

I don't want to jump in too deep in this thread for fear of making an ass of myself(I've only had micro and macro economics classes and that was enought for me )but like you said capitalism may be the best method for spreading wealth we have(I'm of a different opinion but that's me) but it's still doesn't mean it's doing a good job. Half the worlds population lives on less than $2 a day. The wealthiest nation on Earth has the widest gap between rich and poor of any industrialized nation. The 3 richest people on the planet have more capital than the 600 million that live in the poorest countries.

Like I said, capitalism may be the best system we have but it isn't doing a very good job.

linky

My two lefty cents.

You don't need an economics education to see the problems with the capitalist system. And there are obviously problems.

Here is a few things:

- "Half the world's population lives on less than $2 a day". True. But how much is $2 worth over there? You have to look at purchasing power of that money. In some countries, you are extremly rich if you make $3,000 a year, and get nearly everything you want. There are disparity issues, but to say that everyone that makes less than $2 a day is poor, is wrong. There are also cultural issues, some people don't make money and instead rely on sustanance farming. Much of this is covered in that Macro course you took.

- The gap between the rich and poor can generally be closed by anyone that wants to. Too many rags to riches stories for that not to be true.

- Capitalism wants to move people from inefficient to efficent outcomes. Unproductive areas (ie. Newfoundland) will be poor in order to move those resources to rich areas (ie. Alberta). Canada has destroyed this capitalist principle, and now we have a welfare burden in one area and a labour shortage a 5 hour flight away. This is a failure attributed to capitalism (welfare burden and labour shortage), but really, its the fault of welfarist government attitudes.

So there is two sides to all of your points, but most are very valid. There is no reason for Canada and the rest of the west to help out the third world a little more.

[Riverwind]

"Half the world's population lives on less than $2 a day". True. But how much is $2 worth over there? You have to look at purchasing power of that money.

Many goods (such as computer and medical) have a global price so someone making $2/day may not be starving but will not have access to many things we take for granted.

The gap between the rich and poor can generally be closed by anyone that wants to. Too many rags to riches stories for that not to be true.

Rags to riches stories are the exception as opposed to the rule. Often these stories owe a fair amount to being in the right place at the right time in addition to whatever talent/motivation the individual had.

Capitalism wants to move people from inefficient to efficent outcomes. Unproductive areas (ie. Newfoundland) will be poor in order to move those resources to rich areas (ie. Alberta).

According to this logic we should just throw open our borders to immigrants from poor nations instead of exporting jobs there. There is a limit to how much we can expect people to move around because migration creates problems in itself. There has to be a balance.

[geoffrey]

"Half the world's population lives on less than $2 a day". True. But how much is $2 worth over there? You have to look at purchasing power of that money.

Many goods (such as computer and medical) have a global price so someone making $2/day may not be starving but will not have access to many things we take for granted.

Medicial isn't exactly true. Drugs are cheaper to Africans than to us. Domestic markets generally set prices within a range acceptable in the international market. Plus we subsidize most medical care in the 3rd world... or its provided by non-profit volunteers.

Your right, but we just don't want these people starving or out in the cold. I don't think having a computer and a nice car are basic human rights or we have any obligation to help people out with these things.

The gap between the rich and poor can generally be closed by anyone that wants to. Too many rags to riches stories for that not to be true.

Rags to riches stories are the exception as opposed to the rule. Often these stories owe a fair amount to being in the right place at the right time in addition to whatever talent/motivation the individual had.

I honestly haven't been able to get my head around the idea that poor people will be poor forever. Work hard in school, get ahead in life. If your not a school type, go work in a high paying labour job, like being a plumber or a rig hand at the oil sands. There are tons of ways to get ahead whether your intelligent or not.

Those in the 3rd world just don't have the opportunities however, so it takes a considerable bit more effort. More free trade and an emphasis on buying product from the 3rd world will give these people more opportunity through their own economic growth.

Capitalism wants to move people from inefficient to efficent outcomes. Unproductive areas (ie. Newfoundland) will be poor in order to move those resources to rich areas (ie. Alberta).

According to this logic we should just throw open our borders to immigrants from poor nations instead of exporting jobs there. There is a limit to how much we can expect people to move around because migration creates problems in itself. There has to be a balance.

Of course. I'm saying within Canada being our primary concern. Once we solve the problem here, and still have a labour shortage, then yes, we need to open our borders. But never to the point where it creates excess labour, that would be counter-productive now wouldn't it?

[Riverwind]

I honestly haven't been able to get my head around the idea that poor people will be poor forever. Work hard in school, get ahead in life. If your not a school type, go work in a high paying labour job, like being a plumber or a rig hand at the oil sands. There are tons of ways to get ahead whether your intelligent or not.

It depends on what you mean by "rich". I agree that anyone who learns to manage their finances and adapt their expectations can get to the point where they are comfortable. However, the vast majority of people will never be "rich" in the hollywood defintion no matter how hard they work.

[geoffrey]

I honestly haven't been able to get my head around the idea that poor people will be poor forever. Work hard in school, get ahead in life. If your not a school type, go work in a high paying labour job, like being a plumber or a rig hand at the oil sands. There are tons of ways to get ahead whether your intelligent or not.

It depends on what you mean by "rich". I agree that anyone who learns to manage their finances and adapt their expectations can get to the point where they are comfortable. However, the vast majority of people will never be "rich" in the hollywood defintion no matter how hard they work.

The hollywood definition of rich is unreasonable in most situations anyways. I'm saying $50k+ is obtainable by everyone with a solid work ethic and a desire to have it. It will probably take more than a few years to get there too. But sound financial management at that level of income or even lower levels, will have you your house, car, and a reasonable quality of life.

The real problem is everyone's defnition of middle-class/rich/poor are so divided that its hard to say. Everyone in the world minus a few really rich people and really poor people think they are middle class. I'd be suprised if anyone on these forums classified themselves as rich or poor.

Middle-class in people's opinions ranges from $30k to $200k a year. It's troubling, we need to set guidelines.

When I said rich I meant comfortable. In the big scheme of things though, everyone in Canada is extremely rich compared to most of the rest of the world. Something to keep in mind. We all have alot to be thankful for.

[theloniusfleabag]

Dear geoffrey,

The gap between the rich and poor can generally be closed by anyone that wants to. Too many rags to riches stories for that not to be true.

This is not true. Everybody cannot be 'rich', though 'anyone' can.

[geoffrey]

Dear geoffrey,

The gap between the rich and poor can generally be closed by anyone that wants to. Too many rags to riches stories for that not to be true.

This is not true. Everybody cannot be 'rich', though 'anyone' can.

Agreed completely. Everyone doesn't want to be 'rich' either though right.

[lost&outofcontrol]

True. But how much is $2 worth over there? You have to look at purchasing power of that money. In some countries, you are extremly rich if you make $3,000 a year, and get nearly everything you want. There are disparity issues, but to say that everyone that makes less than $2 a day is poor, is wrong. There are also cultural issues, some people don't make money and instead rely on sustanance farming. Much of this is covered in that Macro course you took.

The World Bank defines extreme poverty as living on less than $1(us) per day, and moderate poverty as less than $2 a day. That I did learn in my macro course.

Those in the 3rd world just don't have the opportunities however, so it takes a considerable bit more effort. More free trade and an emphasis on buying product from the 3rd world will give these people more opportunity through their own economic growth.

How much longer do they(over 3 billions !) have to wait ? They've been getting screwed over for 300+ years. I don't know if you've noticed but free trade has crippled their local economies. Many African countries were almost completely self sufficient in the late 70s to early 80s.

[geoffrey]

Those in the 3rd world just don't have the opportunities however, so it takes a considerable bit more effort. More free trade and an emphasis on buying product from the 3rd world will give these people more opportunity through their own economic growth.

How much longer do they(over 3 billions !) have to wait ? They've been getting screwed over for 300+ years. I don't know if you've noticed but free trade has crippled their local economies. Many African countries were almost completely self sufficient in the late 70s to early 80s.

You'll be suprised how much I agree with you. We need to stop selling them our goods, that is just hurting their domestic, non-mass production markets. We need to start buying their cheap goods from them.

We are applying this free-trade policy in reverse. It's easy for me to fly down to Vietnam and introduce my products to their markets. It's pretty much impossible for most Vietnamese small-businessmen to do the same and develop markets in Canada for their goods. They need to go through Wal-Mart and Zellars, people that screw them completely in their ability to create sustained markets on their own.

This is a problem with free-trade that needs to be addressed, for the benifet of both countries.

Who will this hurt in the eyes of the zero-summers... only big businesses that maintain their monopoly on imported goods by too strict trade laws.

Most of the textiles and agricultural producers would rather sell their own goods, but they are prevented by our laws, instead they need Canadian or NAFTA companies to do it for them.

Completely free-trade is all that will work.

[Michael Hardner]

Aug:

More broadly, as a Canadian, I don't see why I should assume the "cost" of helping foreigners who want to come to Canada, or even helping them discover whether they can find a suitable job here.

If you're an employer, then the benefit to you of getting cheaper labour outweighs the cost to the country as a whole doesn't it ?

Much of the arguments I've read here seem to revolve around manufacturing, and high paying jobs that get outsourced. What is the benefit to Canadians ? Cheaper goods and more profit to investors and owners.

Of course, it isn't a zero sum game but it does seem to hit hardest at those people who priced their labour above world prices. And, frankly, that's most of us isn't it ?

[August1991]

Aug:

More broadly, as a Canadian, I don't see why I should assume the "cost" of helping foreigners who want to come to Canada, or even helping them discover whether they can find a suitable job here.

If you're an employer, then the benefit to you of getting cheaper labour outweighs the cost to the country as a whole doesn't it ?

Yes, but the benefit is not only to the employer. The benefit is also to all the buyers of the employers products or services.

If I could invent a pill that would make people bilingual, taxpayers would save alot of money since they wouldn't have to hire language teachers - and it would save many language students alot of effort. Of course, language teachers would have to find new employment.

That's the essence of the free trade argument, both the good and the bad.

To be more realistic maybe, imagine that the pill required a strange chemical imported from China, and it cost $20,000 a dose. Some Canadian language teachers would probably choose a new career, because their services had greater value elsewhere.

Aug:

More broadly, as a Canadian, I don't see why I should assume the "cost" of helping foreigners who want to come to Canada, or even helping them discover whether they can find a suitable job here.

Much of the arguments I've read here seem to revolve around manufacturing, and high paying jobs that get outsourced. What is the benefit to Canadians ? Cheaper goods and more profit to investors and owners.

Of course, it isn't a zero sum game but it does seem to hit hardest at those people who priced their labour above world prices. And, frankly, that's most of us isn't it ?

Michael, you missed the main point I was making.

I knew a woman in Quebec City (true story) who wanted a career in Hollywood. She flew to LA, stayed with friends, and went to the cattle calls. I admired her ambition but I thought she was buying a lottery ticket. As it turned out, I last saw her on the rue St-Jean and she was working in a bank.

She (and her LA friends) bore the cost of this speculative investment.

Canadian taxpayers participate in the speculative investments of immigrants. We shouldn't.

I don't want to jump in too deep in this thread for fear of making an ass of myself(I've only had micro and macro economics classes and that was enought for me )

Internet forum? Ass? Impossible.

Jump into the deep end, and have fun.

[Michael Hardner]

I knew a woman in Quebec City (true story) who wanted a career in Hollywood. She flew to LA, stayed with friends, and went to the cattle calls. I admired her ambition but I thought she was buying a lottery ticket. As it turned out, I last saw her on the rue St-Jean and she was working in a bank.

She (and her LA friends) bore the cost of this speculative investment.

Canadian taxpayers participate in the speculative investments of immigrants. We shouldn't.

I like your analogy. So much so, that I'd like to "step in" like a gentleman at the dance.

Speculative investments may fail individually, but on the whole and in the long term they pay off, which is why people invest in them.

Try another analogy here. The casino loses lots of individual bets, but wins in the long term. The economic benefits to Canada of immigration are clearly there (growth, lower labour costs) unless all of the governments of the last thirty years or so are grossly incompetent.

Do you think the current administration will make a significant reduction ?

[August1991]

Speculative investments may fail individually, but on the whole and in the long term they pay off, which is why people invest in them.

Why should I participate in a risky investment when someone else will reap all the possible gains?

Although you raise a good point. Some immigration officer at some time in the past admitted Stephen Harper's ancestors. Without that positive decision, Canada would be a different country today.

The casino loses lots of individual bets, but wins in the long term. The economic benefits to Canada of immigration are clearly there (growth, lower labour costs) unless all of the governments of the last thirty years or so are grossly incompetent.

I suspect the casino would be happy to lose more bets (and attract more customers) if the government subsidized the casino. When the government gets involved in subsidizing immigrants to Canada, it tilts the equation more toward losses than gains.

Do you think the current administration will make a significant reduction ?

They have other priorities right now.

[Michael Hardner]

Why should I participate in a risky investment when someone else will reap all the possible gains?

That's the whole question of Free Trade isn't it ?

I suspect the casino would be happy to lose more bets (and attract more customers) if the government subsidized the casino. When the government gets involved in subsidizing immigrants to Canada, it tilts the equation more toward losses than gains.

It sounds to me you're saying what's good for business may be bad for Canada as a whole.

Next stop, NDP.

Do you think the current administration will make a significant reduction ?

They have other priorities right now.

But later ?

[August1991]

Eighteenth Fallacy: Le déséquilibre fiscal is French for "Let's pick Alberta's pocket"

I could be wrong. Do Quebec politicians simply want cash from Albertans?

Maybe it's about sharing something we all own.

If luring capable workers to your province was as simple as abolishing the sales tax, I'm sure other provinces would be doing that in droves...

But then the province would have to curtail public service or increase its debt. The point is that provinces such as Alberta can provide such public services wit lower taxes. This induces people to move to Alberta, where in the absence of this advantage, they wouldn't.

But it is differences in the levels of expenditures relative to tax rates that are of primary concern for equalization. They give rise to two complementary effects, one of whose importance involves a value judgment.

The first effect is so-called fiscal inefficiency, that is, the fact that individuals,

firms, or economic activity more generally will have an incentive to locate in provinces that can provide given levels of public services at lower tax rates (or higher levels of public service at given tax rates).

Regina Boadway

Suppose there is a Newfoundland fisherman does work that contributes value of (just for the sake of argument) $30,000 a year to the Canadian economy, but there is a vacant job on an oil rig that he could fill that would contribute value of $60,000 a year to the Canadian econom.

Your argument makes perfect sense, but I would just add in the nuance that the fisherman doesn't see his value to the Canadian economy - he sees his after-tax income and different government services provided in the different provinces.

Alberta's wealth may well skew the fisherman's choice so that he leaves a job of greater value to the Canadian economy than the one he'll take up, simply because of Alberta's easier revenue abilities.

Equalization payments (and CHST too, I guess) are designed to correct for this problem.

The following data refers to Federal Income Tax in the taxation year 2002. Data available here.

Federal returns filed in Alberta: 2.2 million

Federal returns filed in Ontario: 8.7 million

Federal returns filed in Quebec: 5.6 million

Federal returns filed in Canada: 22.9 million

But a report for the Canadian Centre for Policy Alternatives, to be released Tuesday, says the real culprit is the provinces' choice to cut taxes in the late 1990s, sucking more than $30 billion a year out of provincial treasuries.

"The real force behind the fiscal pressures currently faced by provincial governments is competitive tax cutting by provincial governments intent on getting ahead in the race to the bottom,'' concludes the report, compiled by economist Hugh Mackenzie for the left-leaning think tank.

The tax cutting binge was started by Ontario but was quickly matched, to varying degrees, by other provinces, particularly in the West.

"Fiscal imbalance . . . is largely a problem inflicted by the provinces on themselves through tax competition,'' Mackenzie says.

....

"In fact, the data demonstrate that the real fiscal imbalance involves local governments, not provincial governments,'' he says.

But if the provinces created the problem, Mackenzie contends they can't be left to their own devices to fix it.

No premier will want to take the politically explosive step of raising taxes, the obvious solution to the problem.

Moreover, Mackenzie says provinces are under intense pressure to keep their tax rates competitive with one another. With highly mobile companies and individuals prepared to move to the lowest-tax jurisdiction, no province wants to be the first to raise taxes.

"Provincial governments are caught in a kind of political/fiscal prisoners' dilemma in which no individual province has an incentive to take action which would benefit all provinces if they all did it.''

CanWest July 10, 2006