I just realized that it's possible to do a one click post from Youtube to Blogger.
Thank you, google media conglomerate. (Maybe sometimes there *is* efficiency in monopoly).
Anyhow, here's my appearance last night on TVO's The Agenda with Steve Paikin, talking about the election, a few minutes before the polls closed. We're sort of the election pre-game show. The game was pretty good, too.
Guests: me, Jordan Peterson, Carla Luchetta, Akaash Maharaj.
Tuesday, May 3, 2011
Friday, March 18, 2011
Why Warren Buffett loves Wells Fargo
The bank sticks to its knitting: banking.
"Our business is really pretty simple if you can operate a four function calculator and understand the concepts of compound interest and present value, if you kept those basics, and then if you have any modicum of common sense."
"Our business is really pretty simple if you can operate a four function calculator and understand the concepts of compound interest and present value, if you kept those basics, and then if you have any modicum of common sense."
-- Timothy J Sloan, CFO, Wells Fargo, quoted in this week's Bloomberg Business Week
Thursday, March 17, 2011
Ontario's misguided Green Energy policy
My essay on tonight's The Agenda with Steve Paikin:
A prof at Carleton just emailed to ask where some of my stats came from -- so consider the following a giant footnote:
* I mention that electricity costs are expected to rise by 46% in the next five years, or about four times the rate of inflation. The figure comes from the Ontario government. It was in last fall's Ontario Fall Economic Update, as were lots of other numbers on this subject. The specific page with the figures on electricity is here.
Here's a chart of what electricity prices are going to do over the next few years, from the 2010 Fall Economic Update.
* What's driving the price increase? Again, from the Fall Economic Update:
Over the next five years, however, residential electricity prices are expected to rise by 46 per cent, which is an average annual rate of about 7.9 per cent. This increase will be due to two factors: upgrading and modernizing Ontario’s existing capacity in nuclear and natural gas generation, transmission and distribution (44 per cent); and the investment in new clean, renewable energy generation (56 per cent).
So even under the government's own trust-us-we-know-what-we're-doing accounting, more than half of the escalation in Ontario energy prices is caused by the high cost of wind and solar. That's due to the fact that wind and solar producers are being paid rates that are run from double to umpteen times the rates paid electricity produced by coal, gas, hydro and nuclear energy. And of the remaining 44 per cent of the cost increase, some of that -- not clear how much -- is being driven by expansions of the "transmission and distribution" system... and much of that expansion is required to link all of those disparate wind and solar locations to the grid. Solar/wind is spectacularly expensive and inefficient on its own, PLUS there's an additional expense in building the wires necessary to get it to market.
* Where does Ontario's power come from? Here's a chart, from the IESO:
Note that this is a big shift from a few years ago, when coal was about 20%, and gas was around 0%. Coal has come down because gas has gone up. And that's been a big environmental benefit -- a real and substantial environmental benefit -- since gas produces about half as much CO2 as coal, per amount of energy generated, and even less smog causing chemicals. Switching to gas hasn't been high cost, it has cut Ontario's greenhouse gases generated by electricity in half, and by 2014 when coal is phased out, greenhouse gases generated by electricity will be down 75%. As I say in the essay, this is big news. The McGuinty govenrment should be congratulated, but they should also explain to people that this big environmental success has nothing to do with the ultra expensive arrival of wind and solar, which is being sold as a quasi-environmental plan, but is really just a (completely misguided, total waste of money, doomed to failure... I can go on all day...) industrial policy. We are giving huge, huge subsidies to wind and solar to "create" jobs, not to help the environment.
* The installed power mix is somewhat different from the above output chart -- because nuclear is baseload power (runs all the time), gas is peak (only used when needed) and wind is unreliable (only used when available).
Again, from the IESO:
Supply Mix*: Ontario’s electricity supply mix currently includes:
Nuclear: 11,446 MW or 33%
Gas: 9,497 MW or 27%
Coal: 4,484 MW or 13%
Hydro: 7,947 MW or 23%
Wind: 1,235 MW or 3.6%
Other (woodwaste, biogas, etc): 122 MW or 0.4%
*Generating resources as of February 20, 2011.
* And this is pretty cool: you can also get a real time breakdown of how much electricity Ontario is using right now, and where it is coming from, on the homepage of the IESO.
* Finally, something that everyone should read: a recent paper from Jan Carr, former head of the Ontario Power Authority, on the subject of what he sees as the economic and environmental illogic of the Ontario Green Energy Act.
Like me, Carr thinks the most logical way to reduce pollution -- the most economically logical way, meaning the way you get the most environmental bang for the least buck -- is a carbon tax. Right now, we have a system that is doing the exact opposite: we have a crazy, command and control system that pays no attention to prices, and doesn't use prices to efficiently allocate resources. On the contrary, the government has basically ordered the IESO to buy the most expensive power first, and to fill the remainder of Ontario's needs with whatever cheaper power is left over, which is the opposite of how you run any other business. It's the opposite of rational. It's the opposite of efficient. We are not setting goals for greenhouse gas reductions, putting a price on carbon, and then leaving it to rational engineers and economists and investors and power users to figure out how to get to that goal at the lowest cost possible. Instead the government is simply ordering the power system to construct a certain number of solar and wind installations, and then ordering the system to buy the power produced, regardless of cost. It's insane. It's like Gosplan, only worse. It's a system that, as Carr explains far better than I do, has neither environmental nor economic logic, and thus is giving us maximum buck for minimum bang.
Another critic of the system worth paying very close attention to is energy expert and environmentalist-who-uses-economics Tom Adams.
ADDENDUM:
One more thing: there's the question of where Ontario's pollution and GHGs come from.
This document from the Pembina Institute has some good summary charts on the various sources of greenhouse gases in Ontario. The data is for 2007 -- still early days in the shutdowns of the coal plants -- and at the time the generation of electricity and heating (Pembina's table includes "heating," I assume that includse people heating their homes with natural gas and oil) accounted for just 17% of Ontario's GHGs, a number that has dropped over the last 4 years, as the amount of coal in our power system has dropped. We must now be down around 10% or so for electricity production plus whatever very small percentage of GHGs are attributable to people heating homes with oil or gas. Jan Carr (see his paper above) says that when the coal plants are fully phased out in 2014 electricity will account for only 5% of the province's greenhouse gases (plus, as above, some very small percentage for home oil/gas heating).
So, as I said in the video above, if we want to reduce greenhouse gases, we'd do well to look beyond electricity, and concentrate on those sources representing the other 95% of the problem.
And as the Pembina factsheet points out, the largest and fastest growing contributor is transportation, which is almost entirely cars, buses and trucks (trains and planes account for a little bit, but not much). In 2007, transport accounted for 31%, and the percentage is climbing both because the volume of GHGs produced by Ontario cars and trucks is rising, and because the volume of GHGs produced by electricity is falling. So transport accounts for around a third of Ontario GHGs now, and if you do the math on electricity falling to just 5% of GHGs by 2014, then transport will be getting close to 40% of the problem by in three years.
In other words: if you want to deal with greenhouse gases, you have to look at a carbon tax -- and that includes a carbon tax on the biggest source of carbon, namely cars and trucks running on gasoline.
If you want to see how they could be done, have a look at something I wrote last year for cbc.ca. It compares the Ontario approach with the carbon-tax approach used by British Columbia.
A prof at Carleton just emailed to ask where some of my stats came from -- so consider the following a giant footnote:
* I mention that electricity costs are expected to rise by 46% in the next five years, or about four times the rate of inflation. The figure comes from the Ontario government. It was in last fall's Ontario Fall Economic Update, as were lots of other numbers on this subject. The specific page with the figures on electricity is here.
Here's a chart of what electricity prices are going to do over the next few years, from the 2010 Fall Economic Update.
* What's driving the price increase? Again, from the Fall Economic Update:
Over the next five years, however, residential electricity prices are expected to rise by 46 per cent, which is an average annual rate of about 7.9 per cent. This increase will be due to two factors: upgrading and modernizing Ontario’s existing capacity in nuclear and natural gas generation, transmission and distribution (44 per cent); and the investment in new clean, renewable energy generation (56 per cent).
So even under the government's own trust-us-we-know-what-we're-doing accounting, more than half of the escalation in Ontario energy prices is caused by the high cost of wind and solar. That's due to the fact that wind and solar producers are being paid rates that are run from double to umpteen times the rates paid electricity produced by coal, gas, hydro and nuclear energy. And of the remaining 44 per cent of the cost increase, some of that -- not clear how much -- is being driven by expansions of the "transmission and distribution" system... and much of that expansion is required to link all of those disparate wind and solar locations to the grid. Solar/wind is spectacularly expensive and inefficient on its own, PLUS there's an additional expense in building the wires necessary to get it to market.
* Where does Ontario's power come from? Here's a chart, from the IESO:
Note that this is a big shift from a few years ago, when coal was about 20%, and gas was around 0%. Coal has come down because gas has gone up. And that's been a big environmental benefit -- a real and substantial environmental benefit -- since gas produces about half as much CO2 as coal, per amount of energy generated, and even less smog causing chemicals. Switching to gas hasn't been high cost, it has cut Ontario's greenhouse gases generated by electricity in half, and by 2014 when coal is phased out, greenhouse gases generated by electricity will be down 75%. As I say in the essay, this is big news. The McGuinty govenrment should be congratulated, but they should also explain to people that this big environmental success has nothing to do with the ultra expensive arrival of wind and solar, which is being sold as a quasi-environmental plan, but is really just a (completely misguided, total waste of money, doomed to failure... I can go on all day...) industrial policy. We are giving huge, huge subsidies to wind and solar to "create" jobs, not to help the environment.
* The installed power mix is somewhat different from the above output chart -- because nuclear is baseload power (runs all the time), gas is peak (only used when needed) and wind is unreliable (only used when available).
Again, from the IESO:
Supply Mix*: Ontario’s electricity supply mix currently includes:
Nuclear: 11,446 MW or 33% Gas: 9,497 MW or 27% Coal: 4,484 MW or 13% Hydro: 7,947 MW or 23% Wind: 1,235 MW or 3.6% Other (woodwaste, biogas, etc): 122 MW or 0.4%*Generating resources as of February 20, 2011.
* And this is pretty cool: you can also get a real time breakdown of how much electricity Ontario is using right now, and where it is coming from, on the homepage of the IESO.
* Finally, something that everyone should read: a recent paper from Jan Carr, former head of the Ontario Power Authority, on the subject of what he sees as the economic and environmental illogic of the Ontario Green Energy Act.
Like me, Carr thinks the most logical way to reduce pollution -- the most economically logical way, meaning the way you get the most environmental bang for the least buck -- is a carbon tax. Right now, we have a system that is doing the exact opposite: we have a crazy, command and control system that pays no attention to prices, and doesn't use prices to efficiently allocate resources. On the contrary, the government has basically ordered the IESO to buy the most expensive power first, and to fill the remainder of Ontario's needs with whatever cheaper power is left over, which is the opposite of how you run any other business. It's the opposite of rational. It's the opposite of efficient. We are not setting goals for greenhouse gas reductions, putting a price on carbon, and then leaving it to rational engineers and economists and investors and power users to figure out how to get to that goal at the lowest cost possible. Instead the government is simply ordering the power system to construct a certain number of solar and wind installations, and then ordering the system to buy the power produced, regardless of cost. It's insane. It's like Gosplan, only worse. It's a system that, as Carr explains far better than I do, has neither environmental nor economic logic, and thus is giving us maximum buck for minimum bang.
Another critic of the system worth paying very close attention to is energy expert and environmentalist-who-uses-economics Tom Adams.
ADDENDUM:
One more thing: there's the question of where Ontario's pollution and GHGs come from.
This document from the Pembina Institute has some good summary charts on the various sources of greenhouse gases in Ontario. The data is for 2007 -- still early days in the shutdowns of the coal plants -- and at the time the generation of electricity and heating (Pembina's table includes "heating," I assume that includse people heating their homes with natural gas and oil) accounted for just 17% of Ontario's GHGs, a number that has dropped over the last 4 years, as the amount of coal in our power system has dropped. We must now be down around 10% or so for electricity production plus whatever very small percentage of GHGs are attributable to people heating homes with oil or gas. Jan Carr (see his paper above) says that when the coal plants are fully phased out in 2014 electricity will account for only 5% of the province's greenhouse gases (plus, as above, some very small percentage for home oil/gas heating).
So, as I said in the video above, if we want to reduce greenhouse gases, we'd do well to look beyond electricity, and concentrate on those sources representing the other 95% of the problem.
And as the Pembina factsheet points out, the largest and fastest growing contributor is transportation, which is almost entirely cars, buses and trucks (trains and planes account for a little bit, but not much). In 2007, transport accounted for 31%, and the percentage is climbing both because the volume of GHGs produced by Ontario cars and trucks is rising, and because the volume of GHGs produced by electricity is falling. So transport accounts for around a third of Ontario GHGs now, and if you do the math on electricity falling to just 5% of GHGs by 2014, then transport will be getting close to 40% of the problem by in three years.
In other words: if you want to deal with greenhouse gases, you have to look at a carbon tax -- and that includes a carbon tax on the biggest source of carbon, namely cars and trucks running on gasoline.
If you want to see how they could be done, have a look at something I wrote last year for cbc.ca. It compares the Ontario approach with the carbon-tax approach used by British Columbia.
Egypt will make Washington wish its allies really were puppets
Below, something I wrote and published on Feb 3, in the National Post.
An article posted today on Al Jazeera English by Amis Landoni largely agrees with my take -- that there is reason to be concerned that the Arab revolts/future regimes will be less pro-American or pro-Israeli than what they replace. Though the Al Jazeera poster is, unlike me, not exactly "concerned" about this, but instead quite excited at the prospect. She'd rather like to see some more-than-just-rhetorical anti-Westernism come to power. The Nasser period was such a positive time....
The difference between me and Ms. Landoni is that I hope to be proved wrong. She will be very disappointed in the Arab people if they prove her wrong and fail to use their new democracy (should Egypt and others in the region ever achieve that -- still a big if) to increase their opposition to America's interests, and in particular to increase their support for the Palestinian cause.
*******************
Egypt will make Washington wish its allies really were puppets.
(First published Feb 3, 2011, National Post)
By Tony Keller
So he’s going. Eventually. Maybe in eight months. Unless the protests grow. Which they will. In which case the timetable could be speeded up. Egyptian President Hosni Mubarak is on his way out, and something more democratic is going to try to take the old regime’s place. It’s only a matter of time.
That’s the good news. Drink it in. Enjoy. And now, the caveats. We shouldn’t have any illusions that this revolution is necessarily going to result in a fully democratic, law-abiding, rights-respecting government. It might, but there are no guarantees. Egypt could end up with a new military regime: populist and demagogic, as Gamal Abdel Nasser was, but not democratic. Or it might get something like the Iranian revolution, which replaced a monarchy with a dictatorship pretending to be a democracy. Egypt could get one man, one vote, one time.
Nor should we have any illusions that even if a democratic government does emerge, it will be pro-Western, or friendly toward Israel.
And as for Washington’s ability, to control events within Egypt, now or in the future, well, don’t have any illusions about that either. Mubarak may have accepted billions of dollars in U.S. aid over the years, but Egypt has never been an American puppet.
The Cairo-Washington alliance, which arose in the 1970s, was based on a long list of shared interests, such as opposing Islamic fundamentalism, opposing Iran, avoiding another Arab-Israeli war, and seeking a two-state solution for Israel and the Palestinians. Washington and the new Egypt may find themselves looking at a shorter list of common interests. Possibly much shorter.
In his two televised addresses since the protests began, Mubarak has tried to play on the idea that if he leaves, disorder will follow; that he and his police are all that stands between Egypt and anarchy. By removing police from the streets, he certainly seems to be trying to make those fears come to pass. The international community has the same worries about what change in Egypt means for international order, except that its very real concerns don’t have to be manufactured by a Mubarak PR campaign.
The current Egyptian government may make life unhappy for its own people, but at least it’s not making life hell for its neighbours. Mubarak’s Egypt has a peace treaty with Israel and more than that, it quietly co-operates with Israel. Just like Washington and the European Union, it sees Syria and Iran as threats, not friends. Ditto for Hezbollah. It backs the Palestinian Authority, not Hamas. It wants regional stability, not regional war.
We don’t know exactly what the new Egypt is going to want, but nobody should be surprised if it ends up pursuing a foreign policy far less favourable to the West’s interests, and Israel’s. That depressing likelihood has echoed through the pages of Israeli newspapers over the past few days. The sense that the peace treaty with Egypt may be under threat has Israelis wondering if they are once again about to find themselves surrounded by hostile states, a situation they have not faced in a generation.
The new Egypt might follow Turkey, whose moderate Islamist government disrupted its predecessors’ alliance with Israel, and instead sought friction with Israel as a way of satisfying its voting base. Or things could turn out worse. The demonstrations of the past week have been largely secular, and largely non-partisan, which is a very hopeful sign. But the protests have not been led by a political party, nor have they given birth to one (at least not yet). The only major party in Egypt, other than Mubarak’s NDP, is the banned Muslim Brotherhood. That is who is mostly likely to win an election, if one were held immediately. Hamas, which controls Gaza and rejects peace with Israel, is an offshoot of the Brotherhood.
Earlier this week, Sheikh Naeem Quassem, the secretary general of Lebanon’s Hezbollah, said that he and his party “salute the resistant and proud Egyptian people who have set an example in rejecting normalization with Israel and in their continuous aspiration for freedom, independence and glory.” Hezbollah is stretching the truth: The protests in the streets are largely about Egypt’s economic failures and its lack of civil and political rights, not its relations with Israel. But there was a time when the peace treaty was seen as the main sin of the regime. Peace is why Sadat was assassinated in 1981, and why Egypt was kicked out of the Arab League from 1979 to 1989.
And there are signs that some protestors see a related matter, the alliance with the United States, as one of the main humiliations visited on Egypt by Mubarak. Mubarak is sometimes pictured as an agent of the Americans, as if the regime had been brought to Egypt on a CIA plane. Watch enough al-Jazeera and you’ll hear the idea expressed. The notion is sometimes even hinted at in the Western media — the fact that Egypt gets more than $1-billion a year in U.S. aid apparently being proof that Mubarak is a Washington creation. It’s ridiculous. Mubarak may be America’s problem, but he isn’t America’s fault.
Mubarak is the appointed successor of Sadat, himself the appointed successor to Nasser, whose military regime, which has been ruling under emergency powers since the 1960s, started out as an explicitly anti-Western revolutionary movement. It overthrew a pro-Western government, and Britain and France went to war against it 1956. It became a Soviet ally. It was only in the 1970s, after the death of Nasser, that the regime moved away from the Soviet Union and towards the West, as Sadat realized that endless war with Israel was a game that had to be stopped.
The men running Egypt are not American puppets, any more than the men running China are American puppets for having given up global revolution and embraced global trade. Washington didn’t put them in power, Washington didn’t keep them in power. Egypt is not a dictatorship because Washington wished it; Egypt will not become a successful democracy just because Washington wishes it.
And yet there are times when Washington surely wonders how much easier life would be if its allies really were nothing more than marionettes. The next few years of dealing with Egypt is going to be one of those times.
An article posted today on Al Jazeera English by Amis Landoni largely agrees with my take -- that there is reason to be concerned that the Arab revolts/future regimes will be less pro-American or pro-Israeli than what they replace. Though the Al Jazeera poster is, unlike me, not exactly "concerned" about this, but instead quite excited at the prospect. She'd rather like to see some more-than-just-rhetorical anti-Westernism come to power. The Nasser period was such a positive time....
The difference between me and Ms. Landoni is that I hope to be proved wrong. She will be very disappointed in the Arab people if they prove her wrong and fail to use their new democracy (should Egypt and others in the region ever achieve that -- still a big if) to increase their opposition to America's interests, and in particular to increase their support for the Palestinian cause.
*******************
Egypt will make Washington wish its allies really were puppets.
(First published Feb 3, 2011, National Post)
By Tony Keller
So he’s going. Eventually. Maybe in eight months. Unless the protests grow. Which they will. In which case the timetable could be speeded up. Egyptian President Hosni Mubarak is on his way out, and something more democratic is going to try to take the old regime’s place. It’s only a matter of time.
That’s the good news. Drink it in. Enjoy. And now, the caveats. We shouldn’t have any illusions that this revolution is necessarily going to result in a fully democratic, law-abiding, rights-respecting government. It might, but there are no guarantees. Egypt could end up with a new military regime: populist and demagogic, as Gamal Abdel Nasser was, but not democratic. Or it might get something like the Iranian revolution, which replaced a monarchy with a dictatorship pretending to be a democracy. Egypt could get one man, one vote, one time.
Nor should we have any illusions that even if a democratic government does emerge, it will be pro-Western, or friendly toward Israel.
And as for Washington’s ability, to control events within Egypt, now or in the future, well, don’t have any illusions about that either. Mubarak may have accepted billions of dollars in U.S. aid over the years, but Egypt has never been an American puppet.
The Cairo-Washington alliance, which arose in the 1970s, was based on a long list of shared interests, such as opposing Islamic fundamentalism, opposing Iran, avoiding another Arab-Israeli war, and seeking a two-state solution for Israel and the Palestinians. Washington and the new Egypt may find themselves looking at a shorter list of common interests. Possibly much shorter.
In his two televised addresses since the protests began, Mubarak has tried to play on the idea that if he leaves, disorder will follow; that he and his police are all that stands between Egypt and anarchy. By removing police from the streets, he certainly seems to be trying to make those fears come to pass. The international community has the same worries about what change in Egypt means for international order, except that its very real concerns don’t have to be manufactured by a Mubarak PR campaign.
The current Egyptian government may make life unhappy for its own people, but at least it’s not making life hell for its neighbours. Mubarak’s Egypt has a peace treaty with Israel and more than that, it quietly co-operates with Israel. Just like Washington and the European Union, it sees Syria and Iran as threats, not friends. Ditto for Hezbollah. It backs the Palestinian Authority, not Hamas. It wants regional stability, not regional war.
We don’t know exactly what the new Egypt is going to want, but nobody should be surprised if it ends up pursuing a foreign policy far less favourable to the West’s interests, and Israel’s. That depressing likelihood has echoed through the pages of Israeli newspapers over the past few days. The sense that the peace treaty with Egypt may be under threat has Israelis wondering if they are once again about to find themselves surrounded by hostile states, a situation they have not faced in a generation.
The new Egypt might follow Turkey, whose moderate Islamist government disrupted its predecessors’ alliance with Israel, and instead sought friction with Israel as a way of satisfying its voting base. Or things could turn out worse. The demonstrations of the past week have been largely secular, and largely non-partisan, which is a very hopeful sign. But the protests have not been led by a political party, nor have they given birth to one (at least not yet). The only major party in Egypt, other than Mubarak’s NDP, is the banned Muslim Brotherhood. That is who is mostly likely to win an election, if one were held immediately. Hamas, which controls Gaza and rejects peace with Israel, is an offshoot of the Brotherhood.
Earlier this week, Sheikh Naeem Quassem, the secretary general of Lebanon’s Hezbollah, said that he and his party “salute the resistant and proud Egyptian people who have set an example in rejecting normalization with Israel and in their continuous aspiration for freedom, independence and glory.” Hezbollah is stretching the truth: The protests in the streets are largely about Egypt’s economic failures and its lack of civil and political rights, not its relations with Israel. But there was a time when the peace treaty was seen as the main sin of the regime. Peace is why Sadat was assassinated in 1981, and why Egypt was kicked out of the Arab League from 1979 to 1989.
And there are signs that some protestors see a related matter, the alliance with the United States, as one of the main humiliations visited on Egypt by Mubarak. Mubarak is sometimes pictured as an agent of the Americans, as if the regime had been brought to Egypt on a CIA plane. Watch enough al-Jazeera and you’ll hear the idea expressed. The notion is sometimes even hinted at in the Western media — the fact that Egypt gets more than $1-billion a year in U.S. aid apparently being proof that Mubarak is a Washington creation. It’s ridiculous. Mubarak may be America’s problem, but he isn’t America’s fault.
Mubarak is the appointed successor of Sadat, himself the appointed successor to Nasser, whose military regime, which has been ruling under emergency powers since the 1960s, started out as an explicitly anti-Western revolutionary movement. It overthrew a pro-Western government, and Britain and France went to war against it 1956. It became a Soviet ally. It was only in the 1970s, after the death of Nasser, that the regime moved away from the Soviet Union and towards the West, as Sadat realized that endless war with Israel was a game that had to be stopped.
The men running Egypt are not American puppets, any more than the men running China are American puppets for having given up global revolution and embraced global trade. Washington didn’t put them in power, Washington didn’t keep them in power. Egypt is not a dictatorship because Washington wished it; Egypt will not become a successful democracy just because Washington wishes it.
And yet there are times when Washington surely wonders how much easier life would be if its allies really were nothing more than marionettes. The next few years of dealing with Egypt is going to be one of those times.
Thursday, March 3, 2011
Crunching the numbers on the Quebec City arena. Conclusion: somebody got hosed
My latest, appearing in tomorrow's National Post:
On Tuesday, Quebec City announced that it was going ahead with the construction of a new, $400 million arena, to host an NHL team that Quebecor’s Pierre-Karl Peladeau hopes to bring to the city. The same day in Regina, the city and the province of Saskatchewan turned the wheel in the other direction, announcing that they were shelving plans for a $430 million, retractable roof stadium, whose main tenant would have been the CFL’s Saskatchewan Roughriders. Both projects have repeatedly demanded federal money, demands that Ottawa for months deftly avoided saying yes to without ever saying no. On Wednesday, the Conservative government finally said no. The right decision—but as Quebec City showed, municipalities and provinces are quite capable of blowing taxpayer dollars with or without Ottawa’s help.
American pro sports franchises and politicians are past masters at the game of using public money to support private teams. But in Canada, the game is rarely played. The Toronto Maple Leafs, Montreal Canadiens, Vancouver Canucks and Ottawa Senators are private businesses, playing in private arenas built with private money. Even the publicly-owned Scotiabank Saddledome in Calgary and Rexall Place in Edmonton have relatively limited taxpayer involvement. Billionaire owners going cap-in-hand to government is long standing practice in the US, but it’s a new trend in Canada.
This week, Quebec City mayor Regis Lebeaume played the game like a pro. He insisted that the new arena would almost certainly not cost taxpayers a cent, but would instead turn a profit while sparking urban renewal, boosting the economy, raising tax revenues and curing leprosy.
Ignore the magician’s hands and keep your eyes on the prize: the arena’s $400 million price tag.
The math goes something like this: Quebecor is buying the naming rights to the arena, paying $63.5 million if it hosts an NHL team, and less if it doesn’t. A group of local fans kicked in another $13 million. Subtract those amounts from $400 million, and that leaves the taxpayer on the hook for more than $320 million worth of construction costs (All figures before cost overruns). If government borrowed the money—-and given that Quebec is deep in deficit and the most indebted province in Canada, every cent going in to the arena is borrowed—-the debt service cost, based on Quebec City’s repayment schedule, would be $26 million a year. Quebecor, which has agreed to a long-term lease on the arena, will pay $5 million a year in rent, less if it fails to land an NHL team. In other words, under the most optimistic scenario, Quebecor is paying $5 million a year for an arena that will cost at least $26 million a year to finance.
But Quebec City taxpayers will not be picking up most of the arena’s tab. The bulk of the money, $200 million, is coming from the province. The mayor’s claims about the arena’s future “profitability” treat these funds not as a loan or an investment, but a donation. Ditto for $50 million that the municipal government is kicking in as an up-front lump sum. Both contributions from taxpayers are accounted for as free money. In Quebec City’s fantasy arena accounting, a quarter billion dollars just fell from the sky.
The stadium math in Regina is just as iffy. The CFL’s Saskatchewan Roughriders, who would be the main tenant in any new facility, currently play at the old Mosaic Stadium. Their rent? According to the Riders’ annual report, a maximum of $200,000 per year. Projected cost of the new stadium? $430 million. I’ll wait here while you crunch the numbers.
The thing is, the Riders are already a very successful team. Playing at Mosaic Stadium, they pulled down more than $30 million in revenue in 2009-10, and turned a profit of $3.1 million. By CFL standards, this is outstanding. To make money playing 10 home football games a year, the team doesn’t need a new stadium, and certainly not a $430 million Cadillac with a sunroof. The Riders can’t afford even a fraction of that cost. But do they and their fans and many politicians want a new stadium? Of course. Why wouldn’t they? If somebody else picks up the car payments, Joe Lunchbucket can drive to his job at the gravel yard in a gold-plated Bentley.
There are other Canadian teams whose situation looks an awful lot like that of the Riders. The Edmonton Oilers, for example. Owner Darryl Katz has been lobbying ever more loudly for taxpayers to help build a newer, bigger, more expensive downtown arena to replace Rexall Place. The Oilers may want a new arena, but as with the Riders, need is a whole other story. The Oilers already sell more tickets, and at higher ticket prices, than almost every American NHL team. The Oilers do not appear to have a revenue problem. What they have is an expenditure problem—-the problem being that many American NHL teams (and even more franchises in the NFL, MLB and NBA) are subsidized by taxpayers, through sweetheart deals allowing them to play almost rent free. That reduces team expenses and boosts profits.
The future of the arena finance game was on display this week in Quebec City. A new precedent has been set. Taxpayers, watch your wallets.
Tony Keller is a visiting fellow at the Mowat Centre for Policy Innovation. His study, “The Hoser Effect and the new economics of the NHL” will be released next week.
On Tuesday, Quebec City announced that it was going ahead with the construction of a new, $400 million arena, to host an NHL team that Quebecor’s Pierre-Karl Peladeau hopes to bring to the city. The same day in Regina, the city and the province of Saskatchewan turned the wheel in the other direction, announcing that they were shelving plans for a $430 million, retractable roof stadium, whose main tenant would have been the CFL’s Saskatchewan Roughriders. Both projects have repeatedly demanded federal money, demands that Ottawa for months deftly avoided saying yes to without ever saying no. On Wednesday, the Conservative government finally said no. The right decision—but as Quebec City showed, municipalities and provinces are quite capable of blowing taxpayer dollars with or without Ottawa’s help.
American pro sports franchises and politicians are past masters at the game of using public money to support private teams. But in Canada, the game is rarely played. The Toronto Maple Leafs, Montreal Canadiens, Vancouver Canucks and Ottawa Senators are private businesses, playing in private arenas built with private money. Even the publicly-owned Scotiabank Saddledome in Calgary and Rexall Place in Edmonton have relatively limited taxpayer involvement. Billionaire owners going cap-in-hand to government is long standing practice in the US, but it’s a new trend in Canada.
This week, Quebec City mayor Regis Lebeaume played the game like a pro. He insisted that the new arena would almost certainly not cost taxpayers a cent, but would instead turn a profit while sparking urban renewal, boosting the economy, raising tax revenues and curing leprosy.
Ignore the magician’s hands and keep your eyes on the prize: the arena’s $400 million price tag.
The math goes something like this: Quebecor is buying the naming rights to the arena, paying $63.5 million if it hosts an NHL team, and less if it doesn’t. A group of local fans kicked in another $13 million. Subtract those amounts from $400 million, and that leaves the taxpayer on the hook for more than $320 million worth of construction costs (All figures before cost overruns). If government borrowed the money—-and given that Quebec is deep in deficit and the most indebted province in Canada, every cent going in to the arena is borrowed—-the debt service cost, based on Quebec City’s repayment schedule, would be $26 million a year. Quebecor, which has agreed to a long-term lease on the arena, will pay $5 million a year in rent, less if it fails to land an NHL team. In other words, under the most optimistic scenario, Quebecor is paying $5 million a year for an arena that will cost at least $26 million a year to finance.
But Quebec City taxpayers will not be picking up most of the arena’s tab. The bulk of the money, $200 million, is coming from the province. The mayor’s claims about the arena’s future “profitability” treat these funds not as a loan or an investment, but a donation. Ditto for $50 million that the municipal government is kicking in as an up-front lump sum. Both contributions from taxpayers are accounted for as free money. In Quebec City’s fantasy arena accounting, a quarter billion dollars just fell from the sky.
The stadium math in Regina is just as iffy. The CFL’s Saskatchewan Roughriders, who would be the main tenant in any new facility, currently play at the old Mosaic Stadium. Their rent? According to the Riders’ annual report, a maximum of $200,000 per year. Projected cost of the new stadium? $430 million. I’ll wait here while you crunch the numbers.
The thing is, the Riders are already a very successful team. Playing at Mosaic Stadium, they pulled down more than $30 million in revenue in 2009-10, and turned a profit of $3.1 million. By CFL standards, this is outstanding. To make money playing 10 home football games a year, the team doesn’t need a new stadium, and certainly not a $430 million Cadillac with a sunroof. The Riders can’t afford even a fraction of that cost. But do they and their fans and many politicians want a new stadium? Of course. Why wouldn’t they? If somebody else picks up the car payments, Joe Lunchbucket can drive to his job at the gravel yard in a gold-plated Bentley.
There are other Canadian teams whose situation looks an awful lot like that of the Riders. The Edmonton Oilers, for example. Owner Darryl Katz has been lobbying ever more loudly for taxpayers to help build a newer, bigger, more expensive downtown arena to replace Rexall Place. The Oilers may want a new arena, but as with the Riders, need is a whole other story. The Oilers already sell more tickets, and at higher ticket prices, than almost every American NHL team. The Oilers do not appear to have a revenue problem. What they have is an expenditure problem—-the problem being that many American NHL teams (and even more franchises in the NFL, MLB and NBA) are subsidized by taxpayers, through sweetheart deals allowing them to play almost rent free. That reduces team expenses and boosts profits.
The future of the arena finance game was on display this week in Quebec City. A new precedent has been set. Taxpayers, watch your wallets.
Tony Keller is a visiting fellow at the Mowat Centre for Policy Innovation. His study, “The Hoser Effect and the new economics of the NHL” will be released next week.
Tuesday, March 1, 2011
Jerry Seinfled on mortality, entropy, gravity and television
"The thing about television is that it always wins in the end. Television always wins. In other words, these shows that we had, if we didn’t kill them, they would kill us. It’s not a fair fight. You can subdue it for a period of time, a long period of time, but you know its only getting stronger and you’re getting weaker. And I knew some day,and I didn’t know when it was, it might have been the next season, it might have been the one after, one day this thing was going to smite me down. The trick is to make a neat and graceful exit before it gets that chance."
-- Jerry Seinfeld interviewed by Garry Shandling on The Larry Sanders Show Complete Series DVD.
The Economic Theory of Superstars -- Adler's Alternative Theory
The nice thing about the web is that space is unlimited. (Time? Not so much). And so, if it it would have been possible for me to write an ROB Mag column that was twice as long (see the previous post) I would have introduced the major critic of Rosen's Superstars theory: an economist named Moshe Adler. Adler, in his paper "Stardom and Talent," agrees that there are superstars, and he agrees with Rosen as to the mechanism by which they make all of that money, but he disagrees that the process is always "rational." He thinks that consumers can be mistaken. Frequently.
Consider: Lady Gaga is not necessarily an objectively better musician than, say, some 26 year old who just completed a master's in performance at Berkelee College of Music.
But she is more popular. And Adler argues that "better" and "more popular" aren't always the same thing. (In Rosen's original theory, it seems to be assumed that one is "more popular" because one is "more talented" and "better") Lady Gaga, says Adler, may be more popular because, well, she's more popular. People like to consume the same thing as their peers, they move in packs, they engage in herd behaviour, etc. Trauber, the i-banker in my column is certainly a "more popular" investment banker, but is he better? Is he smarter than the other i-bankers? That's a reasonable question. Ditto for Lady Gaga. The Adler theory says that she's more popular in part because she's, well, more popular.
Rosen is basically the market-is-efficient version of the economic theory of superstars. And Adler is the market-can-often-be-inefficient version of the theory. Both say that you are going to have superstars, but the latter says that there are times when there's nothing rational/efficient about it. People buy a lot of one superstar product because they believe it is better, but that belief may not be true. That applies to anyone who has ever invested money with a star money manager. Or anyone who ever bought a popular stock that every analyst recommended.
There's a good blog post here on David Beckham as an Adler superstar: he gets hired by the LA Galaxyand paid so much because he's David Beckham and can generate buzz, interest, media coverage, etc, NOT because he is objectively the best football player in the world, but rather the most popular and best know player in the world. He's a celebrity. The team is paying him umpteen million dollars a year because they hope his celebrity can put bums in seats, while at the same time people may be putting their bums in the seats because they mistakenly believe that he is the best player in the world. In other words, sales/marketing/branding can triumph over hard mathematical facts. To which the average person would reply: duh.
It sometimes takes a lot of brainpower to explain the obvious.
Lady Gaga, Hedge Funds, $1,000/hr lawyers -- and the Economic Theory of Superstars
Last month I wrote about the Economic Theory of Superstars in ROB Magazine.
In Sherwin Rosen's 1981 theory, the ultra high pay of certain entertainment superstars (and certain investing superstars, such as hedge fund managers) can be explained by the combination of two forces: imperfect substitution -- no two singers are the same, and twice as much singing by a bad singer will not satisfy an audience as half as much singing by a popular singer -- and joint consumption technologies, namely the ability for one recording session to yield a theoretically unlimited number of CDs or itunes downloads. The combo is what allows Lady Gaga to make tens of millions of dollars a year. Ditto the most popular hedge fund managers.
But even if all you've got going to for you is one of those factors, namely "imperfect substitution", you can still do rather nicely in certain fields. For example, the law. The creme of the crop of lawyers in New York, reports the WSJ, are now billing at rates in excess of $1,000 an hour.
My article on Superstars Theory is below -- but wait, there's more! In a future post, I'll return to this theme, and offer economist Moshe Adler alternative and more critical/skeptical version of how the superstar effect works -- which I couldn't get into here, for reasons for space. (Hey, it's old fashioned ink-on-dead-trees journalism. Ya only get 700 words).
You are no doubt appalled. Yeah, me too, I guess. But moral outrage, unlike i-banking, is easy. Let's consider a less demotic proposition: that Trauber's compensation, and that of some of his peers, is perfectly rational. It just might be, if you believe in the Economic Theory of Superstars.
Three decades ago, University of Chicago economist Sherwin Rosen set out to solve the riddle of why some people are paid so much more than the rest of us. He looked at the industry with the most extreme inequalities: the entertainment business. There are millions of starving artists in the world, like the singer at your local pub who can barely make rent. Yet Lady Gaga made an estimated $62 million last year. How come?
In Rosen's groundbreaking 1981 paper, "The economics of superstars," he explained why Lady Gaga doesn't have to be 5,000 times better than the local musician in order to earn 5,000 times more. He pointed to two factors: "imperfect substitution," which is our willingness to pay a lot more for that which is only a bit better, and "joint consumption technologies," which allow a popular musician's work to be purchased simultaneously by millions. Either one can lead to high pay. Together, they spell superpay.
Imperfect substitution is easy to understand. "Lesser talent," said Rosen, "is often a poor substitute for greater talent." Three mediocre singers won't satisfy an audience as much as one excellent singer. A major corporation facing a major lawsuit will likely hire the best lawyer; a lawyer who is 10% less competent can't compensate by working 10% more, or charging 10% less. As a result, said Rosen, "the demand for the better sellers increases more than proportionately."
Trauber is one of those better sellers. A classic i-banker, he helps energy companies do deals, especially mergers and acquisitions. He and his team at UBS have done 115 oil and gas deals over the past five years, worth $167 billion (according to Bloomberg). Other bankers brought in little or no business, and washed out of the profession. One of Trauber's last big transactions was the $11-billion sale of Smith International Inc. to Schlumberger Ltd. His UBS team advised Smith and collected a fee of $29.3 million.
Did Smith get its money's worth? The deal closed, and the company sold for a premium of 37.5% over its pre-deal share price, compared to an average premium of 26% in other recent oil and gas deals, according to Dealogic. The excess premium was worth about $1 billion to Smith shareholders. If Trauber was responsible for even a fraction of that - something that's hard to prove, or disprove - he earned his fee.
Yet i-bankers like Trauber aren't really full-fledged Rosen superstars. Unlike Lady Gaga and other star entertainers, Trauber does piecework. Each M&A is a one-off. Lady Gaga, in contrast, is software. She can earn a theoretically infinite amount of money from just one recording session: The resulting song can be purchased by millions of consumers worldwide. Or, as Rosen put it, in something close to English, "when the joint consumption technology and imperfect substitution features of preferences are combined, the possibility for talented persons to command both very large markets and very large incomes is apparent."
Which financiers are superstars? Hedge fund managers. They're pulling down Lady Gaga coin, and then some. They pool the money of many investors, because it's not much more time-consuming to manage billions than millions: That's joint consumption technology. And in a demonstration of imperfect substitution, they also charge much higher annual fees than mutual funds. The standard for hedge funds is "two and 20" - 2% of assets under management, plus 20% of returns. Result: In 2009, the 25 highest-paid fund managers earned a total of $25.3 billion.
One mogul, James Simons of Renaissance Technologies, has made more than $1 billion a year for the last half-decade by managing a huge pool and pushing imperfect substitution to the max: Renaissance's standard fee isn't two and 20, but five and 44.
Do hedge fund managers deserve their paycheques? Do i-bankers? In a moral sense, surely not. They planted no crops, educated no children, built no homes and saved no lives. Then again, neither did Lady Gaga. And the free market assigns compensation not on moral merit, but on supply and demand. As long as there are chart-topping songs, there will be chart-topping bankers. Ye have the poor always with you, said Jesus. And the superstar rich, said Rosen.
Tony Keller, a former editorial page editor of The Globe and Mail, is a visiting fellow at the Mowat Centre for Policy Innovation.
In Sherwin Rosen's 1981 theory, the ultra high pay of certain entertainment superstars (and certain investing superstars, such as hedge fund managers) can be explained by the combination of two forces: imperfect substitution -- no two singers are the same, and twice as much singing by a bad singer will not satisfy an audience as half as much singing by a popular singer -- and joint consumption technologies, namely the ability for one recording session to yield a theoretically unlimited number of CDs or itunes downloads. The combo is what allows Lady Gaga to make tens of millions of dollars a year. Ditto the most popular hedge fund managers.
But even if all you've got going to for you is one of those factors, namely "imperfect substitution", you can still do rather nicely in certain fields. For example, the law. The creme of the crop of lawyers in New York, reports the WSJ, are now billing at rates in excess of $1,000 an hour.
My article on Superstars Theory is below -- but wait, there's more! In a future post, I'll return to this theme, and offer economist Moshe Adler alternative and more critical/skeptical version of how the superstar effect works -- which I couldn't get into here, for reasons for space. (Hey, it's old fashioned ink-on-dead-trees journalism. Ya only get 700 words).
Worth every billion
Not long after the U.S. Treasury Department's pay czar ended his oversight of Citigroup's compensation practices, the bank hired a new head of global energy investment banking. Citi, which nearly went under in 2008 and was partly owned by the U.S. government until last December, lured Stephen Trauber away from rival UBS. It dug deep into the kitty to get him. Trauber reportedly will be paid $9 million a year (all currency in U.S. dollars).You are no doubt appalled. Yeah, me too, I guess. But moral outrage, unlike i-banking, is easy. Let's consider a less demotic proposition: that Trauber's compensation, and that of some of his peers, is perfectly rational. It just might be, if you believe in the Economic Theory of Superstars.
Three decades ago, University of Chicago economist Sherwin Rosen set out to solve the riddle of why some people are paid so much more than the rest of us. He looked at the industry with the most extreme inequalities: the entertainment business. There are millions of starving artists in the world, like the singer at your local pub who can barely make rent. Yet Lady Gaga made an estimated $62 million last year. How come?
In Rosen's groundbreaking 1981 paper, "The economics of superstars," he explained why Lady Gaga doesn't have to be 5,000 times better than the local musician in order to earn 5,000 times more. He pointed to two factors: "imperfect substitution," which is our willingness to pay a lot more for that which is only a bit better, and "joint consumption technologies," which allow a popular musician's work to be purchased simultaneously by millions. Either one can lead to high pay. Together, they spell superpay.
Imperfect substitution is easy to understand. "Lesser talent," said Rosen, "is often a poor substitute for greater talent." Three mediocre singers won't satisfy an audience as much as one excellent singer. A major corporation facing a major lawsuit will likely hire the best lawyer; a lawyer who is 10% less competent can't compensate by working 10% more, or charging 10% less. As a result, said Rosen, "the demand for the better sellers increases more than proportionately."
Trauber is one of those better sellers. A classic i-banker, he helps energy companies do deals, especially mergers and acquisitions. He and his team at UBS have done 115 oil and gas deals over the past five years, worth $167 billion (according to Bloomberg). Other bankers brought in little or no business, and washed out of the profession. One of Trauber's last big transactions was the $11-billion sale of Smith International Inc. to Schlumberger Ltd. His UBS team advised Smith and collected a fee of $29.3 million.
Did Smith get its money's worth? The deal closed, and the company sold for a premium of 37.5% over its pre-deal share price, compared to an average premium of 26% in other recent oil and gas deals, according to Dealogic. The excess premium was worth about $1 billion to Smith shareholders. If Trauber was responsible for even a fraction of that - something that's hard to prove, or disprove - he earned his fee.
Yet i-bankers like Trauber aren't really full-fledged Rosen superstars. Unlike Lady Gaga and other star entertainers, Trauber does piecework. Each M&A is a one-off. Lady Gaga, in contrast, is software. She can earn a theoretically infinite amount of money from just one recording session: The resulting song can be purchased by millions of consumers worldwide. Or, as Rosen put it, in something close to English, "when the joint consumption technology and imperfect substitution features of preferences are combined, the possibility for talented persons to command both very large markets and very large incomes is apparent."
Which financiers are superstars? Hedge fund managers. They're pulling down Lady Gaga coin, and then some. They pool the money of many investors, because it's not much more time-consuming to manage billions than millions: That's joint consumption technology. And in a demonstration of imperfect substitution, they also charge much higher annual fees than mutual funds. The standard for hedge funds is "two and 20" - 2% of assets under management, plus 20% of returns. Result: In 2009, the 25 highest-paid fund managers earned a total of $25.3 billion.
One mogul, James Simons of Renaissance Technologies, has made more than $1 billion a year for the last half-decade by managing a huge pool and pushing imperfect substitution to the max: Renaissance's standard fee isn't two and 20, but five and 44.
Do hedge fund managers deserve their paycheques? Do i-bankers? In a moral sense, surely not. They planted no crops, educated no children, built no homes and saved no lives. Then again, neither did Lady Gaga. And the free market assigns compensation not on moral merit, but on supply and demand. As long as there are chart-topping songs, there will be chart-topping bankers. Ye have the poor always with you, said Jesus. And the superstar rich, said Rosen.
Tony Keller, a former editorial page editor of The Globe and Mail, is a visiting fellow at the Mowat Centre for Policy Innovation.
How the CRTC blew it on UBB
My take, from TVO's "The Agenda With Steve Paikin," two weeks ago.
For alternative viewpoints, see here:
For alternative viewpoints, see here:
Monday, February 28, 2011
Crime, Part III: underreported crime
Last summer, Stockwell Day made the mistake of seeming to say that the crime rate wasn't really falling it was rising, because so many crimes were going unreported. We all had a good laugh at this -- how could the minister possibly know how many crimes go unreported to the police? -- until it was realized that Statscan does, in fact, take a very accurate count, every five years. Here's the most recent study, "Criminal Victimization in Canada 2009."
Now, I don't want to let Stock off the hook on this one: crime rates in Canada are falling. (Though as my earlier posts point out, they're falling from such high levels that our crime rates are still far, far higher than they were back in the early 1960s.) And it was a bit of cosmic justice to see the government decimating and decimating the census and belittling Statscan one day, and then being forced to lean on it the next.
But if we leave behind the politics and look at policy, the truth is, as Statscan has shown, that a lot of crime goes unreported: according to the Statscan study, in 1999, only 37% of criminal incidents were reported to police. By 2004, that figured had fallen to 34%. And in 2009, it fell to 31%. That's not a Conservative fact or a Liberal fact, just a fact.
The assumption of many critics is that the low reporting rate is due to the crimes in question being so minor. Maybe. But I started thinking about my own experience, and I realized that I've been the victim of a "minor" crime four times in the last decade and a half. And minor is very much relative, and in the mind of the beholder. And in the "broken window" theory, it is minor crimes that are the most important crimes to prevent, because they lead to an unsafe atmosphere that leads to more crime, and more serious crimes.
So, the four times I was the victim of a crime: My car was once broken in to on the street, it was twice broken in to in my building's underground garage in, and once my car was broken in to in broad daylight, while parked in the employee parking lot at the Globe. Each time, the cost to me was around $500, plus time and aggravation. Each time, I had to replace a smashed window, and each time, something in the car was stolen: once it was running shoes and gym clothes; another time, I had left a pair of unassembled Ikea chairs in the car, one of which was taken. And so on.
And I never reported any of those crimes to the police. Why not? Because I assumed that they wouldn't have been able to do anything. And, given the way our car insurance rates work, I feared that I could be doubly punished through higher insurance rates. I might have been robbed twice, once illegally and once legally. And so, like most people who are the victims of "minor" crimes, I shut up and ate the cost.
So how minor were these crimes? Let's say that the cost to me was $500 per theft, times 4 thefts, or $2,000 in total, over approximately 15 years. Total cost: call it $130/year. And on top of that, there was a cost to me in wasted time (several hours per incident) plus a hard to quantify cost in terms of aggravation and inconvenience each time my car was burgled, plus a general feeling of insecurity.
How much would I have been willing to pay to avoid all of the above? Or at least reduce the odds of being robbed? How much would you pay? If there were some insurance or policy or service that you could buy that would eliminate or at least reduce the risk of a "minor" but costly and insecurity-breeding theft, how much would you be willing to pay for that? How about, say, $200? If every Canadian coughed up $200, that would be just shy of $7 billion a year.
Keep those numbers in mind for a second.
If you're going to criticize the Tory more-criminals-in-prison-for-longer proposals, the logical place (as opposed to the politically expedient place) to start is not with the argument that the policy is too expensive, but rather with the argument that it won't reduce crime -- that it will be an expense that delivers little or no returns. Which might well be the case: After all, putting more small time drug offenders and white collars criminals behind bars isn't likely to make your neighbourhood safer. But if -- if -- the Tory strategy could reduce crime, its costs, estimated as running into the high-single digit billions per year by the Parliamentary Budget Officer, vs. a few hundred million by the government, would be counterbalanced by some benefits.
Has the government made the case? No. It doesn't appear to be even trying. But that question -- the question of costs vs. benefits -- is the question it has to answer. And the counter-argument -- that the policy's costs will outweigh its benefits -- is the one the critics should be making.
The more-criminals-behind-bars-for-longer policy will be expensive: that's kind of a given. But if the government can make the case that its an actual crime reduction strategy, that it will deliver returns, then many Canadians will support it.
The interesting thing to note is that Freakonomics professor Steven Levitt's research on all of this, which I referenced in my Globe article, suggests that higher incarceration rates can reduce crime -- or at least that, in the very particular case of the ultra-high crime US in the 1990s, crime levels were brought down in part by high and rising incarceration rates.
So does any of that apply at all to the Canadian context? I don't know. The government might want to think about making its case, and making in on this cost-benefit basis. Before you spend the money, show us the evidence.
Now, I don't want to let Stock off the hook on this one: crime rates in Canada are falling. (Though as my earlier posts point out, they're falling from such high levels that our crime rates are still far, far higher than they were back in the early 1960s.) And it was a bit of cosmic justice to see the government decimating and decimating the census and belittling Statscan one day, and then being forced to lean on it the next.
But if we leave behind the politics and look at policy, the truth is, as Statscan has shown, that a lot of crime goes unreported: according to the Statscan study, in 1999, only 37% of criminal incidents were reported to police. By 2004, that figured had fallen to 34%. And in 2009, it fell to 31%. That's not a Conservative fact or a Liberal fact, just a fact.
The assumption of many critics is that the low reporting rate is due to the crimes in question being so minor. Maybe. But I started thinking about my own experience, and I realized that I've been the victim of a "minor" crime four times in the last decade and a half. And minor is very much relative, and in the mind of the beholder. And in the "broken window" theory, it is minor crimes that are the most important crimes to prevent, because they lead to an unsafe atmosphere that leads to more crime, and more serious crimes.
So, the four times I was the victim of a crime: My car was once broken in to on the street, it was twice broken in to in my building's underground garage in, and once my car was broken in to in broad daylight, while parked in the employee parking lot at the Globe. Each time, the cost to me was around $500, plus time and aggravation. Each time, I had to replace a smashed window, and each time, something in the car was stolen: once it was running shoes and gym clothes; another time, I had left a pair of unassembled Ikea chairs in the car, one of which was taken. And so on.
And I never reported any of those crimes to the police. Why not? Because I assumed that they wouldn't have been able to do anything. And, given the way our car insurance rates work, I feared that I could be doubly punished through higher insurance rates. I might have been robbed twice, once illegally and once legally. And so, like most people who are the victims of "minor" crimes, I shut up and ate the cost.
So how minor were these crimes? Let's say that the cost to me was $500 per theft, times 4 thefts, or $2,000 in total, over approximately 15 years. Total cost: call it $130/year. And on top of that, there was a cost to me in wasted time (several hours per incident) plus a hard to quantify cost in terms of aggravation and inconvenience each time my car was burgled, plus a general feeling of insecurity.
How much would I have been willing to pay to avoid all of the above? Or at least reduce the odds of being robbed? How much would you pay? If there were some insurance or policy or service that you could buy that would eliminate or at least reduce the risk of a "minor" but costly and insecurity-breeding theft, how much would you be willing to pay for that? How about, say, $200? If every Canadian coughed up $200, that would be just shy of $7 billion a year.
Keep those numbers in mind for a second.
If you're going to criticize the Tory more-criminals-in-prison-for-longer proposals, the logical place (as opposed to the politically expedient place) to start is not with the argument that the policy is too expensive, but rather with the argument that it won't reduce crime -- that it will be an expense that delivers little or no returns. Which might well be the case: After all, putting more small time drug offenders and white collars criminals behind bars isn't likely to make your neighbourhood safer. But if -- if -- the Tory strategy could reduce crime, its costs, estimated as running into the high-single digit billions per year by the Parliamentary Budget Officer, vs. a few hundred million by the government, would be counterbalanced by some benefits.
Has the government made the case? No. It doesn't appear to be even trying. But that question -- the question of costs vs. benefits -- is the question it has to answer. And the counter-argument -- that the policy's costs will outweigh its benefits -- is the one the critics should be making.
The more-criminals-behind-bars-for-longer policy will be expensive: that's kind of a given. But if the government can make the case that its an actual crime reduction strategy, that it will deliver returns, then many Canadians will support it.
The interesting thing to note is that Freakonomics professor Steven Levitt's research on all of this, which I referenced in my Globe article, suggests that higher incarceration rates can reduce crime -- or at least that, in the very particular case of the ultra-high crime US in the 1990s, crime levels were brought down in part by high and rising incarceration rates.
So does any of that apply at all to the Canadian context? I don't know. The government might want to think about making its case, and making in on this cost-benefit basis. Before you spend the money, show us the evidence.
More crime rate surprises, Part II
For anyone who wants to dig a big deeper into the crime stats I mentioned in my last blog post/Globe article, here's the background data.
Crime has been going down, across Canada and in most categories, since the 1990s. However, if you take a longer historical perspective, our current crime rates are actually quite high.
Statscan has been compiling the crime rate (measured as crimes per 100,000 people) and violent crime since the early 1960s. What's more, to allow for comparisons over time, such as I made in my article, Statscan makes adjustments to the historical data to account for the introduction of new crimes, or the movement of some crimes from the non-violent category to the violent category.
Here's the crime rate, 1962-2007, as calculated by Statscan.
Crime is "falling", but it's falling from a historically very high level. And it's nowhere near back to the low levels that were once the norm. It's sort of like unemployment in Canada, circa 2011: falling, but still historically high.
The crime rate -- what Statscan calls the "total criminal code (excluding traffic) crime rate" went from 2,771 per 100,000 in 1962 to a peak of 10,342 in 1991. It then fell, as this chart shows, to 6,899 in 2007. I called Statscan and got the updated numbers: crime rate has continued to fall over past two years, and in 2009 the rate was 6,406.
In other words, the crime rate in Canada roughly quadrupled between 1962 and 1991. And then it fell by 40%. But even after than fall, Canada's crime rate is more than double what it was in 1962.
And violent crime? The story is worse.**
In 1962, there were 221 violent crimes per 100,000. Violent crime climbed steadily until 1992, with the rate more than quadrupling to 1,084 per 100,000 in 1992. And then, violent crime started to fall, though not as sharply as non-violent crime. By 2009, Canada experienced 1,314 violent crimes per 100,000 -- but to allow for the changes in the definition and measurement of crime that have take place since 1962, Statscan adjusts that figure to a 2009 violent crime rate of 920 per 100,000.
In other words, even adjusting for changes in the law and improvements in record-keeping by law enforcement, Canada's violent crime rate is up 316% since 1962.
Another thing I looked at: murder rates, Canada vs. the US. This was a big surprise to me. I knew that crime had been falling sharply since the early 1990s in the US, and that all US big cities were experiencing remarkably reduced murder rates. New York City, for example, has seen its murder rate fall by about 80%. What I hadn't counted on was that US murder rates could have fallen so far, so fast, that many US cities are now safer than the least safe Canadian cities -- all of which are in Western Canada.
For Canadian murder rates, see Statscan's annual tally in each of Canada's census metropolitan areas (CMAs), here:
For comparable US figures, I used the FBI crime database, and looked at what the US calls Metropolitan Statistical Areas (MSAs), which like Canada's CMAs include both the city and its suburbs. (And in the case of really big cities, the exburbs too).
The results are kind of shocking. Go through the US database for yourself. Almost every US city in the Northwestern US states -- scores of communities in 11 states, in a band stretching from Wisconsin/Minnesota/Iowa to Washington/Oregon -- has a lower murder rate that Winnipeg, Edmonton or Vancouver. Urban Western Canada is, if we take murder as our measure, more dangerous than the urban Northwestern US states.
This data upends a few stereotypes and shoots a few sacred cows. The lawless American West? The peaceable land North of 49, kept safe by Sam Steele and his Mountie friends? Not exactly. Not anymore.
One final note, which I didn't have a chance go get into in my Globe article: crime rates in Western Canada are double those Ontario and Quebec -- but crime in the North is off the charts. According to Statscan's annual Crime Severity Index, the most violent jurisdiction, Nunavut, had 11 times as much violent crime as the safest place, Prince Edward Island.
** Correction: In original version I had accidentally attached the wrong table. That's been fixed.
Crime has been going down, across Canada and in most categories, since the 1990s. However, if you take a longer historical perspective, our current crime rates are actually quite high.
Statscan has been compiling the crime rate (measured as crimes per 100,000 people) and violent crime since the early 1960s. What's more, to allow for comparisons over time, such as I made in my article, Statscan makes adjustments to the historical data to account for the introduction of new crimes, or the movement of some crimes from the non-violent category to the violent category.
Here's the crime rate, 1962-2007, as calculated by Statscan.
Crime is "falling", but it's falling from a historically very high level. And it's nowhere near back to the low levels that were once the norm. It's sort of like unemployment in Canada, circa 2011: falling, but still historically high.
The crime rate -- what Statscan calls the "total criminal code (excluding traffic) crime rate" went from 2,771 per 100,000 in 1962 to a peak of 10,342 in 1991. It then fell, as this chart shows, to 6,899 in 2007. I called Statscan and got the updated numbers: crime rate has continued to fall over past two years, and in 2009 the rate was 6,406.
In other words, the crime rate in Canada roughly quadrupled between 1962 and 1991. And then it fell by 40%. But even after than fall, Canada's crime rate is more than double what it was in 1962.
And violent crime? The story is worse.**
In other words, even adjusting for changes in the law and improvements in record-keeping by law enforcement, Canada's violent crime rate is up 316% since 1962.
Another thing I looked at: murder rates, Canada vs. the US. This was a big surprise to me. I knew that crime had been falling sharply since the early 1990s in the US, and that all US big cities were experiencing remarkably reduced murder rates. New York City, for example, has seen its murder rate fall by about 80%. What I hadn't counted on was that US murder rates could have fallen so far, so fast, that many US cities are now safer than the least safe Canadian cities -- all of which are in Western Canada.
For Canadian murder rates, see Statscan's annual tally in each of Canada's census metropolitan areas (CMAs), here:
For comparable US figures, I used the FBI crime database, and looked at what the US calls Metropolitan Statistical Areas (MSAs), which like Canada's CMAs include both the city and its suburbs. (And in the case of really big cities, the exburbs too).
The results are kind of shocking. Go through the US database for yourself. Almost every US city in the Northwestern US states -- scores of communities in 11 states, in a band stretching from Wisconsin/Minnesota/Iowa to Washington/Oregon -- has a lower murder rate that Winnipeg, Edmonton or Vancouver. Urban Western Canada is, if we take murder as our measure, more dangerous than the urban Northwestern US states.
This data upends a few stereotypes and shoots a few sacred cows. The lawless American West? The peaceable land North of 49, kept safe by Sam Steele and his Mountie friends? Not exactly. Not anymore.
One final note, which I didn't have a chance go get into in my Globe article: crime rates in Western Canada are double those Ontario and Quebec -- but crime in the North is off the charts. According to Statscan's annual Crime Severity Index, the most violent jurisdiction, Nunavut, had 11 times as much violent crime as the safest place, Prince Edward Island.
** Correction: In original version I had accidentally attached the wrong table. That's been fixed.
Sunday, February 27, 2011
Surprise: crime in Canada is surprisingly high
In my article in Saturday's Globe, I looked at crime stats. Crime is falling, right?
Yeah, well, about that.... somehow, nobody seems to have noticed that Canada's violent crime rate is 4X what it was in early 1960s.
And Winnipeg has a higher murder rate than Minneapolis. Or Boston. Or NY.
And Vancouver's murder rate is the same as Seattle, and higher than Portland.
I'm surprised. You're surprised. We should all be surprised, given that the main argument against the Tory get-tough-on-crime bills has not been "get-tough-on-crime won't fix this problem" -- a plausible argument, and one I'm partly (maybe even mostly) in agreement with -- but rather "crime problem? What crime problem?"
Link to my Globe story here, or read it below:
It wasn't long after Shawn Beauchamp was released from prison, having served a 40-month term for breaking and entering, assault and robbery, that he was shot to death in Winnipeg's North End. Mr. Beauchamp, 26, was a former gang member apparently trying to go straight. “He wanted to quit the gang,” his cousin told the CBC. “But the only way you get out of the gang is in a box.”
Mr. Beauchamp was Winnipeg's first homicide victim of 2009. That year, Manitoba's capital would go on to claim the title as Canada's deadliest big city, with a record 32 homicides in the urban area and its suburbs. It also took the crown in 2008, and though the rate dropped last year, the city is already on track to eclipse its previous record: Six people have been killed so far in 2011.
In the debate over the federal government's tough-on-crime bills, the standard response of opponents has been to point to one fact: Crime in Canada is falling. But averages hide a lot of variations. A deeper look at the country's crime statistics reveals a more complex picture – and may help to explain the appeal that a tough-on-crime stance has for the Conservatives and their core voters.
Where is crime highest in Canada? In the West, the Tory heartland. Statistics Canada's crime-severity index, a measure combining the number of offences and their seriousness, shows crime still high in the West. Saskatchewan, the province with the highest overall index score, was roughly twice as crime-ridden as Ontario or Quebec in 2009. Manitoba, which topped the index, had more than twice as much violent crime as Ontario or Quebec.
And the discrepancy is not just East-West. It is also North-South. Crime rates in the United States have been plummeting for two decades, dropping far faster than in Canada. In fact, crime has fallen to such a degree in the U.S. that a comparison of data for the most recent year available, 2009, reveals that some cities in Western Canada are now more dangerous than many in the U.S.
For example, Winnipeg's homicide rate is more than double that of the nearest big U.S. city, Minneapolis-St. Paul. Its rate is higher than Boston's. Higher than San Diego's. It's even slightly higher than New York's, if you include the Big Apple's suburbs.
And Winnipeg is not alone. You're more likely to be murdered in Edmonton than in the much larger cities of San Jose, Calif., Salt Lake City, Utah, or Austin, Tex. The homicide rate in Vancouver is higher than in Portland, Ore., and the same as in neighbouring Seattle. In 2009, Edmonton, Winnipeg and Vancouver had higher homicide rates than almost any city in the Northwestern U.S.
Crime rates are much lower east of Manitoba and, as a result, relative to population, Canada has only about a third as many homicides as the United States. (Homicide is often used as a proxy for crime when doing comparisons because, unlike with other crimes, there are no problems of reporting, definitions or fudging of data.) This is another argument that critics of the Conservative crime strategy repeatedly make: Over all, crime rates are still lower in Canada than in the U.S.
The U.S. comparison may be flattering to Canada, but it's not the ideal benchmark. Why not? Because the U.S. is still the most crime-ridden country in the developed world. Aiming no higher is setting the bar pretty low. (And, as Western Canada shows, sometimes we're not even clearing that hurdle.)
The homicide rate in Canada is higher than that of most industrialized countries, often by wide margins. We have 39 per cent more homicides per capita than Australia, 41 per cent more than the United Kingdom, 50 per cent more than Poland, twice as many as Sweden, three times as many as Norway and nearly four times as many as Japan.
And Canada has no reason to be smug about crime when compared with what could be the best standard of all: Canada. According to Statscan, the crime rate today is more than double what it was in the early 1960s. And the rate of violent crime is more than four times higher. The homicide rate? About a third higher. Yes, crime has been on the decline since the 1990s. But that's only after shooting up over the previous three decades.
All of which doesn't mean that the crime-reduction measures proposed by the Tories are necessarily the right ones. But anyone who claims that the government is going after a problem that doesn't exist – anyone who says, ‘Move along, no crime to see here' – isn't telling the truth.
Another argument you hear in the Canadian crime debate: The U.S. experience proves incarceration doesn't reduce crime. A generation ago, the U.S. decided to fight crime by imprisoning more criminals, ending up with more people behind bars than almost any country on Earth. Yet it still has high rates of violent crime. Ergo, imprisonment doesn't work. If anything, imprisonment increases crime. Right?
Maybe not. The American strategy has been exceptionally expensive and has had deeply unpleasant side effects, but when it comes to reducing crime, it appears to have worked, at least somewhat. According to University of Chicago economist Steven Levitt, who spent much of his time analyzing crime data before he became famous for co-writing Freakonomics, the sharp increase in the number of Americans in prison and the sharp drop in U.S. crime are closely related. His research says the former helped cause the latter by deterrence and through “incapacitation,” a creepy technical term for the fact that someone cannot rob your house while he is locked up in the Big House.
In a 2004 study, Prof. Levitt concluded that the growing number of Americans behind bars was responsible for about one-third of the enormous drop in crime in the 1990s. (Other factors he identified were the hiring of more police, the end of the crack epidemic and, controversially, the legalization of abortion – which ensured that fewer unwanted children were born.)
Many American scholars disagree with Prof. Levitt, and there's a real debate over why crime has fallen in the U.S. It's exactly the kind of serious debate that we should have in Canada. The government hasn't exactly been promoting thoughtful discussion, but neither have its “crime-what-crime?” critics.
Canada's crime problem is hardly an out-of-control epidemic. It's not even a crisis, except in a few places such as Winnipeg. It's a problem that has been trending, slowly, in the right direction. But it's a bit premature to be declaring victory. More than two million crimes were reported to the police in 2009, including 443,000 violent crimes, 205,000 break-ins and 108,000 motor-vehicle thefts. And those figures greatly understate the problem: According to Statscan's most recent survey of victims, only 31 per cent of criminal incidents were reported to police in 2009, down from 37 per cent in 1999.
The numbers sure don't sound like a clarion call to complacency.
Tony Keller, a former editorial page editor of The Globe and Mail, is a Toronto writer.
Yeah, well, about that.... somehow, nobody seems to have noticed that Canada's violent crime rate is 4X what it was in early 1960s.
And Winnipeg has a higher murder rate than Minneapolis. Or Boston. Or NY.
And Vancouver's murder rate is the same as Seattle, and higher than Portland.
I'm surprised. You're surprised. We should all be surprised, given that the main argument against the Tory get-tough-on-crime bills has not been "get-tough-on-crime won't fix this problem" -- a plausible argument, and one I'm partly (maybe even mostly) in agreement with -- but rather "crime problem? What crime problem?"
Link to my Globe story here, or read it below:
Globe and Mail Update
Published
Last updated
Mr. Beauchamp was Winnipeg's first homicide victim of 2009. That year, Manitoba's capital would go on to claim the title as Canada's deadliest big city, with a record 32 homicides in the urban area and its suburbs. It also took the crown in 2008, and though the rate dropped last year, the city is already on track to eclipse its previous record: Six people have been killed so far in 2011.
In the debate over the federal government's tough-on-crime bills, the standard response of opponents has been to point to one fact: Crime in Canada is falling. But averages hide a lot of variations. A deeper look at the country's crime statistics reveals a more complex picture – and may help to explain the appeal that a tough-on-crime stance has for the Conservatives and their core voters.
Where is crime highest in Canada? In the West, the Tory heartland. Statistics Canada's crime-severity index, a measure combining the number of offences and their seriousness, shows crime still high in the West. Saskatchewan, the province with the highest overall index score, was roughly twice as crime-ridden as Ontario or Quebec in 2009. Manitoba, which topped the index, had more than twice as much violent crime as Ontario or Quebec.
And the discrepancy is not just East-West. It is also North-South. Crime rates in the United States have been plummeting for two decades, dropping far faster than in Canada. In fact, crime has fallen to such a degree in the U.S. that a comparison of data for the most recent year available, 2009, reveals that some cities in Western Canada are now more dangerous than many in the U.S.
For example, Winnipeg's homicide rate is more than double that of the nearest big U.S. city, Minneapolis-St. Paul. Its rate is higher than Boston's. Higher than San Diego's. It's even slightly higher than New York's, if you include the Big Apple's suburbs.
And Winnipeg is not alone. You're more likely to be murdered in Edmonton than in the much larger cities of San Jose, Calif., Salt Lake City, Utah, or Austin, Tex. The homicide rate in Vancouver is higher than in Portland, Ore., and the same as in neighbouring Seattle. In 2009, Edmonton, Winnipeg and Vancouver had higher homicide rates than almost any city in the Northwestern U.S.
Crime rates are much lower east of Manitoba and, as a result, relative to population, Canada has only about a third as many homicides as the United States. (Homicide is often used as a proxy for crime when doing comparisons because, unlike with other crimes, there are no problems of reporting, definitions or fudging of data.) This is another argument that critics of the Conservative crime strategy repeatedly make: Over all, crime rates are still lower in Canada than in the U.S.
The U.S. comparison may be flattering to Canada, but it's not the ideal benchmark. Why not? Because the U.S. is still the most crime-ridden country in the developed world. Aiming no higher is setting the bar pretty low. (And, as Western Canada shows, sometimes we're not even clearing that hurdle.)
The homicide rate in Canada is higher than that of most industrialized countries, often by wide margins. We have 39 per cent more homicides per capita than Australia, 41 per cent more than the United Kingdom, 50 per cent more than Poland, twice as many as Sweden, three times as many as Norway and nearly four times as many as Japan.
And Canada has no reason to be smug about crime when compared with what could be the best standard of all: Canada. According to Statscan, the crime rate today is more than double what it was in the early 1960s. And the rate of violent crime is more than four times higher. The homicide rate? About a third higher. Yes, crime has been on the decline since the 1990s. But that's only after shooting up over the previous three decades.
All of which doesn't mean that the crime-reduction measures proposed by the Tories are necessarily the right ones. But anyone who claims that the government is going after a problem that doesn't exist – anyone who says, ‘Move along, no crime to see here' – isn't telling the truth.
Another argument you hear in the Canadian crime debate: The U.S. experience proves incarceration doesn't reduce crime. A generation ago, the U.S. decided to fight crime by imprisoning more criminals, ending up with more people behind bars than almost any country on Earth. Yet it still has high rates of violent crime. Ergo, imprisonment doesn't work. If anything, imprisonment increases crime. Right?
Maybe not. The American strategy has been exceptionally expensive and has had deeply unpleasant side effects, but when it comes to reducing crime, it appears to have worked, at least somewhat. According to University of Chicago economist Steven Levitt, who spent much of his time analyzing crime data before he became famous for co-writing Freakonomics, the sharp increase in the number of Americans in prison and the sharp drop in U.S. crime are closely related. His research says the former helped cause the latter by deterrence and through “incapacitation,” a creepy technical term for the fact that someone cannot rob your house while he is locked up in the Big House.
In a 2004 study, Prof. Levitt concluded that the growing number of Americans behind bars was responsible for about one-third of the enormous drop in crime in the 1990s. (Other factors he identified were the hiring of more police, the end of the crack epidemic and, controversially, the legalization of abortion – which ensured that fewer unwanted children were born.)
Many American scholars disagree with Prof. Levitt, and there's a real debate over why crime has fallen in the U.S. It's exactly the kind of serious debate that we should have in Canada. The government hasn't exactly been promoting thoughtful discussion, but neither have its “crime-what-crime?” critics.
Canada's crime problem is hardly an out-of-control epidemic. It's not even a crisis, except in a few places such as Winnipeg. It's a problem that has been trending, slowly, in the right direction. But it's a bit premature to be declaring victory. More than two million crimes were reported to the police in 2009, including 443,000 violent crimes, 205,000 break-ins and 108,000 motor-vehicle thefts. And those figures greatly understate the problem: According to Statscan's most recent survey of victims, only 31 per cent of criminal incidents were reported to police in 2009, down from 37 per cent in 1999.
The numbers sure don't sound like a clarion call to complacency.
Tony Keller, a former editorial page editor of The Globe and Mail, is a Toronto writer.
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