Vive le Québec social et progressif ! : the conflict over higher university tuition fees in Québec

There has been a significant clash over values and higher education taking place in Québec over the past few weeks. There is an on going student strike and there  have been daily demonstrations at many of the university campuses in Montreal and large well atttended marches involving more than 100,000 marchers opposed to the increases.

The popularity of the Charest government appears to be falling in the polls and the apparent unwillingness of the Premier and his key ministers to negotiate a compromise has led to a sense of heightened conflict.

Ever since the Parent Commission on Education in Québec reported in 1966 and recommended an overhaul of higher education in the Province complete with free tuition at the junior college level, the goal of greater access to higher education has been a top policy goal in Québec which in the years before the Quiet Revolution had suffered from a much lower participation rate in higher education. Unfortunately ever since the storms of neo-conservatism and neo-liberalism have disrupted the post war consensus in global politics, politicians even in relatively progressive Québec have increasingly undermined this progressive policy goal.

In today’s Le Devoir, a Montréal based nationalist leaning intellectual daily paper there is an important article and open letter by Yves Perrier and Guy Rocher calling the struggle of the students’ federation in Québec to rollback the proposed $1625 fee increase in student fees which the neo-Liberal leaning  government of Québec intends to implement in stages over the next five years  a just cause. Rocher is a distinguished and influential sociologist who has retired from the Université de Montréal and Perrier is a junior college professor of political science. They present a powerful argument for the logic and practicality of abolishing tuition fees for higher education in Québec pointing out that this was the original intention of some  of  the original Parent commission in 1966, and that a number of Scandinavian countries already successfully follow this approach. They estimate the cost at about 750 million $ given that tuition fees which already have been increased by about 30 % over the past five years are currently at on average $2167  and cover some 188,000 full time students and 84, 000 part-time students in Québec.

If we use these numbers for our estimates of the cost involved in abolishing the fees and foregoing the first year of increases in the coming fiscal year, the cost involved would be roughly 600 million dollars, a relatively small percentage(less than 1 %) of the global Quebec annual budget of 116 billion dollars. Furthermore there are currently 351,000 unemployed persons in Québec. If we reduced this number by 100,000 we could then generate an additional 500 million to 1 billion dollars of tax revenue which alone would easily pay for this reform. Enlarging the pie rather than increasing conflict and class cleavages is always a better option . It represents a sane and rational middle way. Bombardier is building a high speed monorail in Brazil.Why not create a similar project in Québec linking Toronto, Ottawa, Montreal, Québec City and New York. If we create a more dynamic Québec economy, increase local employment, including highly skilled university trained labour and lower the unemployment rate much more becomes possible than the damaging and sterile downward spiral that austerity and increasing tuition fees and user charges delivers.

So merci à M.Rocher et à M.Perrier pour votre  lettre, et vive le Québec social et progressif !  Ce fédéralist le soutient.

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Australia and unemployment rate significantly lower than North America and most of Western Europe

Australia has always been a country I have followed with interest. I had Australian teachers in grade school who were among my favorites and my primary school principal was a kind and wise Australian from Tasmania. I also have some distant cousins in Australia. So I am pleased to see that despite suffering an initial slowdown after the crash and being vulnerable to a slowdown in the Chinese economy Australia is doing significantly better when it comes to unemployment. <p></p>

These rates are reported  in today’s Melbourne Age and they suggest an economy thats doing much better than either western Europe with the exception of Germany, Austria, Luxembourg and the Netherlands and also better than Canada or the U.S. Part of the explanation is undoubtedly due to the proximity to Asia but there may well be other policy aspects involved  which ought to be studied. The chart below courtesy of the Australian Bureau of  Statistics shows unemployment performance since February 2002 which shows that even after the crash and global spike in unemployment the rate peaked for males at just over 6 % and for females at about 5.5 %. from their previous lows of around 4 % for men and 4.5% for women in 2008. So despite the rise in unemployment and the shock of the crash and also the rise in underemployment, the broader measure of underutilization of labour including headline unemployment is about 12 %,  Australia seems to have recovered better than many other countries in the G20

UNEMPLOYMENT RATE: TREND SERIES

Males and females
UNDERUTILISED LABOUR: TREND SERIES

Labour force underutilisation rates
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On Debt follies and deficit hysteria:intelligent voices from the past

Among the many 1000 books in my library is a macro economics text, Macroeconomics:The measurement,analysis and control of aggregate economic activity, 3rd edition from 1968 written by Thomas Dernburg who was then  Professor of Economics at Oberlin college and Duncan McDougall who was Professor of Economics at the University of Kansas. I have the book because it, alongside Gardner Ackley’s text, Macoeconomic Theory  were the basic texts for my first course in macro-economics that I followed with Clarence Barber and Rubin Simkin at the University of Manitoba in the mid sixties.I have the 1968 edition because I only bought the book some years after the course in the mid sixties relying for the most part on Ackley, Keynes’s The General Theory and my lecture notes during the course. Ackley, by the way ,taught at the University of Michigan. Dernburg and McDougall have some very important things to say about public sector deficits and debts which I want to repeat and cite in this new age of deficit hysteria.

” A fully managed compensatory fiscal policy that sets its sights on the targets of full employment, price stability and rapid growth is incompatible with the notion that budgetary balance should also be viewed as  a target of  economic policy….The national debt ….is viewed by fiscal conservatives as a horror which defies our puritan heritage. Projected increases in the debt, moreover, are regarded as living proof that the government of the United States has become the captive of sinister and subversive forces bent on sapping our national life of its vital fluids.” (p.399) They go on to point out that the debt ”follies” of the past include efforts to combat depressions, the cost of financing wars, raising capital to make productive investments in infrastructure and education where private sector investment was inadequate. Furthermore, these public investments would only be harmful if ”the alternate private use of the resources would have yielded a greater marginal social benefit. ” But since the non war year debt was recession induced ”the resources which the government mobilizes would otherwise have been idle…(hence) their mobilization by the government could therefore not possibly be harmful either to the present or to the future.”(p.399-400)…”Public debt and private debt are fundamentally different although this fact is avidly denied by those who make budget balancing a fetish….The nation as a whole cannot, …borrow resources from itself in one year and pay them back in some subsequent year. Thus the idea that the present debt creation comes out of the hide of future generations is pure nonsense…It should be remembered that for every taxpayer who feels himself to be ‘mortgaged’ by national debt, there is also a bondholder who finds himself wealthier by his ownership of such debt.” (p.400) We can add to this that future generations may inherit these public sector debts but they also inherit previous generations’ assets so the burden is a mirage.

Dernburg and Macdougall wrote their first edition more than fifty years ago but their analysis has considerable contemporary relevance.

Posted in austerity, deficit hysteria, deficits and debt, European debt crisis, Greek sovereign debt crisis, Italian debt crisis, J.M.Keynes, Uncategorized | Leave a comment

American unemployment rate drops to 8.2 % but job creation still unsatisfactory

The U.S. Bureau of Labour Statistics reported last week that the unemployment rate fell to 8.2 % . But the total number of new jobs added was a disappointing 83,000 below what the market had been expecting so bearish sentiment got a bit of a boost. The rate fell principally because there were fewer workers actively seeking work. This might be because of demographic factors as aging baby boomers begin to leave the work force the labour force participation numbers will be falling. But it is also because net new job creation has been somewhat sluggish despite the recovery in the GDP and company balance sheets. The broader definition of unemployment also fell from 14.9 % in February to 14.5 % in March.

The second chart and table below courtesy of the U.S.Bureau of Labour Statistics show us both the trend and the fact that unemployment peaked 29 months ago in October  2009 at 10 %. Nonetheless this is a very slow recovery which still has a long way to go before it delivers substantially better unemployment rates. At this rate of improvement it may well take another two years before the unemployment rate falls to below 6 %. Part of the problem has been the lack of employment creation at the state and local government levels which continue to make virtually no contribution to employment growth because of the obsession with deficits as opposed to unemployment. Despite the significant stimulus packages at the beginning of the recession the congressional opposition to enhancing them has caused the federal contribution to reducing the rate to be less than it might have been. The corporate and small and medium business sector have begun to rehire but are still overly cautious about their balance sheets. Given austerity in Europe, a slow down in Asia and heavy consumer debt load the rate of new job creation is smaller than it needs to be.

The first chart below shows us the rate of unemployment since 1980. It shows that the recession of the 1980s was also very severe with  unemployment peaking even higher  at 10.8 % in November of 1982 and falling to 8 % by 1983 and then after two more years falling to 6.9 % by November 1986 a full four years after its peak in 1982. So as painful and frankly unnecessary as the unemployment has been it is not the first time in recent history that the recovery from a severe recession has been as slow and difficult. That said, the moment it becomes politically possible further employment stimulus measures ought to be introduced in Congress to strengthen the recovery and these measures don’t involve austerity.    All charts and tables courtesy of the U.S.Bureau of Labour Statistics

Unemployment rate 1980 to present

Series Id:           LNS14000000
Seasonally Adjusted
Series title:        (Seas) Unemployment Rate
Labor force status:  Unemployment rate
Type of data:        Percent or rate
Age:                 16 years and overDownload:

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual
2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4
2005 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9
2006 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0
2008 5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3
2009 7.8 8.3 8.7 8.9 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9
2010 9.7 9.8 9.8 9.9 9.6 9.4 9.5 9.6 9.5 9.5 9.8 9.4
2011 9.1 9.0 8.9 9.0 9.0 9.1 9.1 9.1 9.0 8.9 8.7 8.5
2012 8.3 8.3 8.2 8.1
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Canadian unemployment rate falls from 7.4 to 7.2 %

There was some good news on the Canadian unemployment front today. Statistics Canada released the March labour force survey which showed further progress in lowering the unemployment rate to 7.2 %, a welcome development. Unemployment fell in Ontario to 7.4% and in Quebec to 7.9 % from its previous month level of 8.4 % however the participation rate in Quebec remains below that of Ontario by 1.7 % points 64.8 versus 66.5 %. The participation rate in Alberta where unemployment rose to 5.3 % is a remarkable 74 %. So in terms of dramatically improving the economic situation both Ontario and Quebec still have a long road to travel.

In Manitoba unemployment fell to 5.3 %, Saskatchewan to 4.8 %, B.C. it rose to 7.0 %, Nova Scotia it rose to 8.3 %, New Brunswick to 10.2 %, Newfoundland to 13 % and P.E.I. to 11.3 %. A mixed picture overall but in the two most populous provinces the rate is heading in the right direction.

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Some notes on the multiplier

A key component of Keynes’ General Theory was R.F. Kahn’s development of the multiplier first published in the Economic Journal in June, 1931 ‘The  Relation of Home Investment to Unemployment.’ Kahn was not the only economist to develop this concept. There were others including L.F.Giblin,at The University of Melbourne, Ralph Hawtrey a key figure in the British treasury who had provided an earlier version of the multiplier in his commentary on The Treatise ,Colin Clark, an Australian statistician educated at Oxford later lectured at Cambridge and worked with Kahn, the Danish statistician Jens Warming and James Meade who made important contributions to the theory of the multiplier. (See the work of Peter Clarke,  Keynes:the Rise, Fall and Return of the 20th Century’s Most Influential Economist; as well as Donald Moggridge, Maynard Keynes: An Economist’s Biography and Robert Dimand, The Origins of the Keynesian Revolution and Robert Skidelsky, John Maynard Keynes:the Economist as Saviour, 1920-1937 )

The size of the multiplier has become a key part of the debate that has taken place over the effectiveness of the Obama stimulus. Anti-Keynesian economists like Robert Barro argue that the multiplier is less than 1 while The Congressional Budget Office believe it to be somewhere between 1 and 2.5 , depending upon where and how the stimulus is spent.Keynes believed along with Kahn that the employment multiplier after accounting for leakages typical of an open economy where foreign trade accounts for 20 % of the GDP approached 2 -3.(GT, p.121-122.) I think the evidence is strong for a multiplier that ranges between 1.5 and 2. (for the Congressional Budget office study see

 ”Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2011 Through March 2011.” (and studies of previous periods)

by  Benjamin Page and Felix Reichling of the Congressional Budget Office.)

( A more recent study (Nov. 26, 2012) of infrastructure spending at the state level on roads and highways finds that the multiplier has the value of  at least two. The study is by Sylvain Leduc and Daniel Wilson.  < a href= ”http://www.economistsview.typepad.com/…/11/the-multiplier-is-at-least-two.html> )

Clearly there are leakages in domestic round one spending to imported goods, debt repayment and precautionary cash hoarding. Keynes discussed these in his chapter  10 on the multiplier and the marginal propensity to consume (see pp.115ff, G.T.) But these leakages may return later to the income stream as people and companies transfer their quasi hoards to real spending and investment and ones trading partners use their accumulations from their export earnings to import goods and services from the original stimulating economy. There will be a lag , of course, but it should happen to a degree nonetheless .If and as this happens the real impact of the  stimulus and the multiplier will be greater.

A.Asimakopulos  in his work Keynes’s general theory and accumulation argues that Keynes in The General Theory presents too static a view of the multiplier where the time lag between the increment of consumption and the increment of income is too short in the Marshallian sense to appreciate the ways in which there can be leakages of spending from a stimulus that results in a smaller multiplier. But Keynes was in fact aware of these possibilities but because of the nature of his Marshallian roots he presented the multiplier in a way that appears more immediate than would in fact be the case. The multiplier, as Keynes himself states in the GT would not reach its full potential and investment not increase to the level of full employment unless the public would increase their savings in terms of wage units sufficient to finance new investment.For this to happen their aggregate income in terms of wage units must increase so that a given propensity to consume will permit additional savings to take place out of an enlarged economy. But they could not achieve this if in response to appropriate stimulus, austerity was implemented because of deficit hysteria. ”The multiplier tells us by how much their employment has to increase to yield an increase in real income sufficient to induce them to do the extra saving and is a function of their psychological propensities ” (GT, 117) Its also a function of the conditions of production in the investment and consumption industries. As Keynes puts it  to get more of the pill of savings one needs sufficient extra jam of consumption.

See also my earlier post on Feb. 8, 2011 in my older blog on blogspot ,Harold Chorney political economist, ”Estimating the size of the multiplier”

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Robert Reich has an excellent op ed in Financial Times: U.S.Recovery so far Benefits largely go to top 10 %.

Robert Reich who throughout this crash and crisis has produced a steady stream of excellent articles on the origins of the crisis and appropriate policies to get out of it and critiques of anti-Keynesian thinking has an excellent article in todays Financial Times. He argues that the American recovery despite strengthening is producing benefits almost exclusively for the top 10 % of American income earners while the other 90 % have experienced little or no gains and continue to be beset by excessive debt exposure and depressed price levels for their homes and their labour.

Have a look at it. If this continues it will undermine the recovery and exacerbate the social and class cleavages in American society.

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Eurozone Unemployment rises to 10.8%, 17.134 million unemployed.

Eurostat has released the latest unemployment data for the Eurozone 17. It does not make for pleasant reading. Because of the foolish contractionary  austerity policies being implemented there, as expected unemployment is rising. It is now  10 % in France, Belgium 7.2 %, 9.3 % in Italy, 23.6 % in Spain, 14.7 % in Ireland and 21.0 % in Greece. Austria on the other hand has 4.2 % unemployment, Germany 5.7 %,  Netherlands 4.9 %, Denmark 7.9 %, and Sweden 7.5 %. The unemployment rate in the U.K. which is , of course, not in the Euro zone, is 8.3%. However, they too are foolishly following a contractionary austerity policy. From February 2011 to February 2012 male unemployment has increased from 9.7 to 10.7% in the Euro17 area and for females from 10.3 to 11%. These increases are greater than the rise in unemployment in the broader EU27.

Youth unemployment is also rising in many countries. The rate is 8.2% in Germany,9.4 % in the Netherlands but unbelievably 50.4 % in Greece and 50.5 % in Spain.It is also elevated in Italy 31.9%, Ireland 31.6%, France 21.7%, Portugal 35.4%, and Sweden 23.5 %. It is high in the U.S. 16.5% and the U.K. 22 %.

With rates of unemployment as high as these it is no surprise to see rising dissatisfaction and social unrest. A sane policy in these circumstances would emphasize spending to stimulate the economy. But sadly reason seems in short supply these days in the policy making circles which run Europe.  See Eurostat for the complete data report.

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Conservative Job and Expenditure Cuts a Risky Approach to Recovery

Canada’s strong employment performance contrasts sharply with that of the United States (the government argues in its budget) Indeed our economy was less severely damaged than the American economy during and immediately after the crash.

Chart 2.9

Total EmploymentTotal Employment
Unemployment RateUnemployment Rate
 Source: Budget 2012

Real GDP growth was modest but resilient through 2011 (Again a direct quote from the Budget)

Chart 2.11Real GDP GrowthReal GDP Growth

Source: Statistics Canada.
 Source Budget 2012
The above charts on unemployment and economic growth are taken from the Government’s budget documents and they are used to justify the policy thrust in the budget that although there are some weaknesses in the economic recovery, the recovery is proceeding and it is safe to introduce modest cuts in expenditure and eliminate civil service positions as part of an austerity exercise. But is this really the case or this a risky decision that might well turn out to be an error? The European economy is re-entering a recession because of the excessive austerity that has been imposed by conservative governments throughout the region and the hidebound monetarism of the European Central bank. China appears to be slowing down somewhat and although things have been improving in the U.S., their unemployment rate remains elevated. Growth in Canada has been positive but it is now slowing. This budget cannot help but slow progress somewhat. Federal cuts and job losses will be reinforced by cuts in Provincial and local government budgets. Fortunately the immediate cuts are not massive but the climate of austerity that will grip the capital will not be helpful in  promoting growth.  The consensus forecasts of private sector economists projects modest growth at best.
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Canadian Conservative Government Budget Raises Eligibility Age for Old Age Pension, Cuts Spending and Eliminates 19000 plus public service jobs

The Canadian Minister of Finance has stubbornly flown in the face of expert advice from the Parliamentary Budget officer and unnecessarily raised the age of eligibility for Canadian old age pensions from 65 to 67. The change will be phased in over six years  beginning in 2023 and be fully operational by 2029. This is about the only good thing about the proposed changes because it gives a new alternative government elected in a future election the opportunity to reverse this bad policy before it is fully implemented. The report of the Parliamentary budget officer who is a non partisan servant of Parliament and therefore the Canadian people has a full report available on the internet which clearly refutes the government’s argument and claim that the OAS is unsustainable in its current form.

In fact, the as the report’s author states ” Seniors’ benefits do not threaten Canada’s fiscal sustainability.” Even if we assume full indexation to inflation and take into account the changing demography of the country, the OAS system in no way undermines fiscal sustainability. With full indexation the system which currently costs 2.2 % of the GDP would cost 3.0 % of the GDP in 2031/32 and then decline to 1.8 % of the GDP in later years.

Even if government revenues are restricted to the historically low level of 15 % of the GDP, 2 percentage points below the average over the past fifty years the system is totally sustainable and no threat to Canadian fiscal sustainability.  It is worthwhile to read the short paper in full. Its available from the Parliamentary budget office here. at (/www.carp.ca/wp-content/uploads/2012/02/Federal-Fiscal-Sustainability-Benefits.pdf). The budget also eliminates some 19,000 plus civil service jobs which is ill advised at a time when unemployment is still elevated and the recovery not fully developed. I will deal with this aspect of the budget and its employment, growth and debt projections in a post later today.

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