Hmm…almost 3 months without a post eh? Well, I guess I can write something.

Since I’ve been minoring in Political Science (my actual interest and focus has been Political Economy), I figured I’d throw out some thoughts on the big topic of the day: economic stimulus.

While it seems that the US rushed through a $787 Billion stimulus bill, there is no reason Canada can’t be a little more thoughtful. I realize that there are some bills working their way through Parliament right now, but I’ll lay out some of my thoughts regardless of them. I realize that politically many of these ideas would never fly but I’m going to present them either way so you can consider them.

My economic thought of late can be characterized as New Keynesian – meaning that I am most interested in microfoundations for Keynesian macroeconomics. I have been highly influenced by the Chicago School, in particular Milton Friedman (I highly recommend reading his Capitalism and Freedom). This generally leads to me being in favour of stimulus activities but wary of too much government involvement.

While Canada can remain committed to free trade (we need to avoid a Buy Canadian provision at all costs and resist countering the US), many positive actions are out of our hands, like completing the Doha Round (US, China, and India are holding it up) or floating the Chinese currency. Parliament needs to stand up against protectionist lobbying (an example would be the CAW pushing for Buy Canadian). History has shown that protectionism can only do more harm in a recession.

Previously I’ve talked about not bailing out the Auto companies and having them go through court supervised restructuring. I still continue to support this, though with the US bailing their companies out it looks likely that Canada will follow. Another idea that I like but think might be a little too extreme for Canada, especially right now, would be abolishing our current income tax structure and social assistance programs and replacing it with a Negative Income Tax. It would make things much more efficient but I really can’t see Canada taking such massive reforms.

I’ll split my thoughts into two sections: one for stimulus activities and one for paying for it. I have no problem with running a deficit through a recession but we need to ensure that it doesn’t spiral out of control and that eventually we return to paying down our public debt.

Stimulus:

1) Cut income tax. This will provide more money to working Canadians and help to increase consumer spending. It should be the cornerstone of any government stimulus action.

2) Invest in public infrastructure. A good place always to pump public dollars. An example would be public transit where new buses/trains could be bought and routes expanded to aid low income workers.

3) Provide a tax credit to companies for new equipment. This will encourage efficiency improvements while also hopefully aiding in creating new jobs.

4) Invest in the Canadian Forces. Likely one of the more controversial ideas but I think that for some stimulus activity the military is a good place. There are lots of possibilities for orders for planes, vehicles, and boats as well as other equipment since the military desperately needs them.

5) Cut capital gains tax. This should help to spur investment and kick some life into the struggling markets.

Revenue:

1) Increase the gasoline tax. I’m a fan of consumption and pigovian taxes (including carbon taxes – I’m fine with implementing them too; but not cap and trade), and with gasoline prices falling as well as inflation under control it is a tax where we can see an increase. It also should have a positive effect on climate change as well as secondary effects such as improving congestion. (As a side note, we should never have cut the GST, and if we really need the revenue I’d be open to raising it back to its previous level.)

2) Legalize and tax marijuana. There is no reason that we should continue to push money into fighting this drug use. I’m not encouraging people to use it, but I don’t believe that it is any worse than tobacco. We’ll get some more tax revenue, save on enforcement costs, and maybe even get some added tourism.

3) Cut agricultural subsidies. This is one of those measures that needs to be done selectively and, along with any consumption tax increases, needs to be phased in over time. An example of where to cut would be ethanol corn subsidies. Encouraging ethanol production for fuel use is absurd as there is no environmental benefit when you factor “well-to-wheel” and it drives up food costs.

Well I hope at least this has been a little thought provoking. That’s the best I can hope for. (Oh, and for the penny to be eliminated.)

Currently Listening to: A Dustland Fairytale – The Killers

Random Wikipedia Link: Erd?s?Bacon number