Inequality, the movies and Kenneth Arrow

Kenneth Arrow's Wikipedia page describes him this way:

Kenneth Joseph Arrow (born August 23, 1921) is an American economist and joint winner of the Nobel Memorial Prize in Economics with John Hicks in 1972. To date, he is the youngest person to have received this award, at 51.

In economics, he is considered an important figure in post-World War II neo-classical economic theory. Many of his former graduate students have gone on to win the Nobel Memorial Prize themselves. Arrow's impact on the economics profession has been tremendous. For more than fifty years he has been one of the most influential of all practicing economists.

The economics profession of course has contributed mightily to the arrival of the current crisis, particularly the proponents of neo-classical theory whose ideas have been at the root of demands for deregulation and lower taxes on corporations and the well-off. So it is worth noting when Kenneth Arrow focuses in on the problem of inequality.  He said the following recently (courtesy of Mark Thoma at Economist's View):

The specific problems of the current U.S. economy—the drastic increase in unemployment and sluggish increase in output—overlay a tendency of much longer duration, a drastic and rapid increase in the inequality of income. Every economy of complexity produces an unequal distribution of the good things in life. But the period immediately following World War II showed a considerably increased equality of income compared with either the Great Depression or the previous period of relative prosperity.

Of course that period was dominated by Keynesian economics.  Arrow argues that while the U.S. has had productivity gains in the past few decades, they have not been widely shared.

Clearly, the bulk of the gains from increased productivity went to a small group of upper-income recipients. Indeed, closer study has shown that the bulk of the increase went to the top 1 percent of income recipients and much of that to those in the top .1 percent.... Profits from the finance sector, which historically have been about 10 percent of all profits, have risen to an extraordinary 40 percent....

This casts light on the claim that the problem is one of personal ethics, of greed....

A proper sense of responsibility has to be enforced by legislation, as it was in the 1930s. There has been some erosion in the law, for example under the Clinton administration, and in enforcement. The Dodd-Frank law is a step in the right direction, but the influence of the financial industry watered it down and created unnecessary complications.

It is not superfluous to argue that steepening the income tax progression, removing a number of blatant loopholes, such as the special treatment of capital gains, and reducing the exemption level for estates would add considerably to post-tax equality.

Clearly the zeitgeist has changed and Arrow's commentary reflects that. The Occupy movement has altered the whole political atmosphere in the United States and Canada and elsewhere. In fact, Arrow's commentary appeared as part of a special series in the Boston Review dedicated to the Occupy movement.

Social change such as we are experiencing is often reflected well in the arts, such as film making.  If you get a chance, don't miss the new movie Margin Call. It is not playing in many cinemas in Toronto at the moment, but is clearly getting good word of mouth (the packed theatre we were in last night has recently added screenings).

Check out the trailer, which, unlike most such promotional spots, summarizes the film well.

Why Obama can't be compared to FDR

Another great post from Ezra Klein:

In “Reaching for a New Deal,” Theda Skocpol and Lawrence Jacobs recall with bemusement the sepia-tinged excitement that greeted Obama’s victory in 2008. What the FDR-obsessed pundits missed, the two political scientists say, was that “the timing, nature, and severity” of the economic crises the two presidents faced were very different.

Franklin D. Roosevelt won the presidency in 1932, three years into the Great Depression. The unemployment rate that year was 23.6 percent. Obama won the presidency in 2008, mere months into the financial crisis; unemployment was at 6.8 percent. Consequently, the two presidents faced political systems prepared to do very different things.

In his new book, “The New Deal: A Modern History,” Michael Hiltzik makes clear that though FDR was an unusually energetic and ambitious president, he was paired with an unusually energetic and ambitious Congress.

Take the Federal Deposit Insurance Corp., which ended traditional bank runs by insuring commercial bank deposits. FDR opposed it. He believed that “the weak banks will pull down the strong.” But senators from rural states represented those small, weak banks. Deposit insurance was part of the price they exacted to pass the Glass-Steagall banking law. “You will have to come to a deposit guarantee eventually, Cap’n,” Roosevelt’s vice president, John Nance Garner, told him. He did — but only because Congress forced him into it.

This happened again and again throughout the New Deal. FDR wanted to go far. But Congress often wanted to go further — occasionally over the president’s objections.

Read the whole thing.

The Problem is Political

Ezra Klein, to whom tcnorris has provided a link for a long time, has written an excellent summary of why a bad economy has plagued Barack Obama in the form of a disparaging book review about Ron Suskind's Confidence Men.

Suskind did not get the story right at all, but this summary by Klein does:

It is easy to tell the story of what the White House did wrong in its response to the financial crisis: it underestimated it. It had good reason to underestimate it, of course. Almost everyone was underestimating it. In the fourth quarter of 2008, when Obama’s economic team was meeting in Chicago to map out their policies, the Bureau of Economic Accounts thought the economy was contracting at a rate of 3.8 percent per year. It wouldn’t be until this year that we learned the economy was really contracting at a rate of 9 percent. And it wasn’t just the BEA. The Federal Reserve has been continuously overoptimistic. So have the leading private forecasting firms, like Macroeconomic Advisers and Moody’s Analytics. And so have Wall Street banks like Goldman Sachs and JPMorgan.

The observers who got it right were the ones who could tell a story that didn’t rely on the early data. Kenneth Rogoff and Carmen Reinhart, who would publish This Time Is Different: Eight Centuries of Financial Folly, their epic history of financial crises, in late 2009, saw that the recovery would be slow and tough. Economists like Paul Krugman and Joseph Stiglitz, who were more knowledgeable about the struggles over recession in Japan and had their own Keynesian understanding of financial panics, were also suitably pessimistic.

But early mistakes can be corrected. If the initial stimulus is too small, you make it bigger. If your housing policies are too modest, you toughen them up. If the private sector sheds jobs and long-term unemployment becomes a problem, you begin hiring workers directly.

Or so goes the theory. The reality is more troubling. The initial stimulus was too small, but there’s no plausible case that Congress would have been willing to make it much bigger just because the Obama administration had a theory that the financial crisis would lead to a worse recession than most forecasters expected. The trouble was that attacking a financial crisis with a too-small stimulus was a bit like attacking pneumonia with too-few antibiotics: you feel better for awhile, and then it comes back. And this time, it’s harder to kill.

The problem is political. Having very publicly passed a very big policy that you promised would revive the economy, the country blames you when the economy does not, in fact, revive. Your policies are discredited and your opponents are emboldened. You lose seats in the next election and your leverage over lawmakers. So you can’t, with any prospect of success, go back to the well and ask for a bigger stimulus or more money to buy up bad mortgages. And then, when the economy gets worse, you’re simultaneously in charge and out of options. You came to Washington promising change and now you’re begging for patience. It’s a crummy situation, and there’s no combination of policy proposals or speeches that can get you out of it. But this is the vise that has tightened around Barack Obama’s presidency.

It seems to me that even those who got it right such as Krugman probably underestimated how much stimulus was actually needed (although he foresaw the political consequences). The Obama stimulus was $700 billion and Krugman and others spoke of 1.3 billion over two years.  As Klein notes revisions to the data made only this year tell us the downturn was much worse than suspected at the time.

We still need lots of stimulus, but the blame for not doing anything now squarely and unequivocally belongs with the Republicans and the austerity class, something that the media in particular, has had trouble figuring out.

More needs to be done by government in the form of public spending in the U.S., Europe and Canada. The mania for deficit cutting and balanced budgets is insane. It cannot be said often enough or loudly enough: we must not worry about deficits while the problem is deflation and unemployment.

Persistent Unemployment & the Austerity Class

Over the longer run I remain an economic optimist, but the North American economy is being dragged down by an "Austerity Class" that dominates political and media discourse preventing the adoption of the Keynsian policies needed to break out of our current economic malaise. Ari Berman has written an excellent summary of its influence in the Nation, that I discovered courtesy of Economist's View:

...a central paradox in American politics over the past two years: how, in the midst of a massive unemployment crisis—when it’s painfully obvious that not enough jobs are being created and the public overwhelmingly wants policy-makers to focus on creating them—did the deficit emerge as the most pressing issue in the country? And why, when the global evidence clearly indicates that austerity measures will raise unemployment and hinder, not accelerate, growth, do advocates of austerity retain such distinction today?

An explanation can be found in the prominence of an influential and aggressive austerity class—an allegedly centrist coalition of politicians, wonks and pundits who are considered indisputably wise custodians of US economic policy. These “very serious people,” as New York Times columnist Paul Krugman wryly dubs them, have achieved what University of California, Berkeley, economist Brad DeLong calls “intellectual hegemony over the course of the debate in Washington, from 2009 until today.”

Its members include Wall Street titans like Pete Peterson and Robert Rubin; deficit-hawk groups like the CRFB, the Concord Coalition, the Hamilton Project, the Committee for Economic Development, Third Way and the Bipartisan Policy Center; budget wonks like Peter Orszag, Alice Rivlin, David Walker and Douglas Holtz-Eakin; red state Democrats in Congress like Mark Warner and Kent Conrad, the bipartisan “Gang of Six” and what’s left of the Blue Dog Coalition; influential pundits like Tom Friedman and David Brooks of the New York Times, Niall Ferguson and the Washington Post editorial page; and a parade of blue ribbon commissions, most notably Bowles-Simpson, whose members formed the all-star team of the austerity class.

The austerity class testifies frequently before Congress, is quoted constantly in the media by sympathetic journalists and influences policy-makers and elites at the highest levels of power. They manufacture a center-right consensus by determining the parameters of acceptable debate and policy priorities, deciding who is and is not considered a respectable voice on fiscal matters. The “balanced” solutions they advocate are often wildly out of step with public opinion and reputable economic policy, yet their influence endures, thanks to an abundance of money, the ear of the media, the anti-Keynesian bias of supply-side economics and a political system consistently skewed to favor Wall Street over Main Street.

Taken together, the various strands of the austerity class form a reinforcing web that is difficult to break. Its think tanks and wonks produce a relentless stream of disturbing statistics warning of skyrocketing debt and looming bankruptcy, which in turn is trumpeted by politicians and the press and internalized by the public. Thus forms what Washington Post blogger Greg Sargent calls a Beltway Deficit Feedback Loop, wherein the hypothetical possibility of a US debt crisis somewhere in the future takes precedence over the very real jobs crisis now.

See the rest of the article here.

Part of what permits this oppressive admosphere to flourish is a journalism that refuses to acknowledge the most obvious of facts.  This phenomenon was recently tackled by James Fallows, a blogger with the Atlantic and former Jimmy Carter speech writer, who took on the dishonest practices of Washington journalism that have facilitated the Republicans' deliberate obstruction of the Democratic majority Senate, using the example of Obama's jobs bill, an initiative at odds with the views of the austerity class.

The link above was to his original post but he followed it up here, here, here, here, and here.

Ontario election polls postscript

The Ontario election produced a minority, or bare majority if the legislature selects an opposition member to be speaker, who is then obligated to vote with the government in the event of tied vote.

Overall, the polls were fairly close to the actual result. The day after analysis in the Globe, in TC's view, was somewhat muddled on this point.

The table below illustrates how the pollsters performed.  It is ranked by the sum of the errors with respect to the PCs, Liberals and NDP (the Top Three column). The All column adds in the error for Greens and others:

			Liberal	PC	N.D.P.	GP	Other	Total Error
	Election Result	Oct. 6, 2011	37.62	35.40	22.70	2.90	1.30	All	Top 3
Oct. 5, 2011	Forum Research	Oct. 4-5	-0.62	-2.40	0.30	0.10	-0.30	3.72	3.32
Oct. 4, 2011	Abacus Data	Oct. 3-4	-0.62	-1.40	1.30	1.10	-0.30	4.72	3.32
Oct. 5, 2011	EKOS	Oct. 3-5	0.98	-1.40	-1.60	2.40	-0.30	6.68	3.98
Oct. 4, 2011	Nanos Research	Oct 1-3	0.08	-2.20	3.10	0.50	-1.30	7.18	5.38
Oct. 5, 2011	Angus Reid*	Oct. 4-5	-0.62	-2.40	3.30	0.10	-0.30	6.72	6.32
Oct. 4, 2011	Angus Reid*	Oct. 3-4	-4.62	0.60	3.30	2.10	-1.30	11.92	8.52
Oct. 4, 2011	Ipsos Reid	Sept 30-Oct 3	3.38	-4.40	2.30	0.10	-0.30	10.48	10.08

Ipsos, which is at the bottom of this list, had the most accurate poll in the federal election.  Given the inherent error in polling one should be very cautious in concluding which polling firm is 'better' than others.

However, there is an asterisk beside Angus Reid as they delivered two 'final' polls in less than a day leading to this account in the Globe after the election:

Ipsos Reid said the Liberals would receive 41 per cent among decided voters, the Tories 31 per cent and the NDP 25 per cent.

That same day, the polling firm Angus Reid announced in a press release, titled “Tories Edging Liberals But Ontario Race Could Turn in Final Hours.” that an online survey it conducted from Monday to Tuesday morning showed the Tories were at 36 per cent and the Liberals at 33 per cent.

“The Progressive Conservative Party has recovered some grounds,” the firm said of its survey conducted for the Toronto Star.

The Star published the results, saying it was the final major poll of the campaign.

But later that day, Angus Reid began to conduct another online poll, which yielded very different results.

“We wanted to track the election right to the last minute so we want back in the field Tuesday afternoon,” Angus Reid managing director Jaideep Mukerji said in an interview.

“There was volatility among Ontarians . . . We knew it was going to a very tight race.”

The later poll ,which wasn’t commissioned by the Star but conducted on Angus Reid’s own account, Mr. Mukerji said, predicted the Liberals would get 37 per cent, the Conservatives 33 per cent and the NDP 26 per cent.

“We’re happy we caught that shift,” Mr. Mukerji said. “There were some Liberals at the last minute who got cold feet about voting conservatives.”

The pollster who worked for The Globe and Mail and CTV, Nanos Research, however released similar numbers two days before Angus Reid’s final poll.

Federal election polls in Ontario
The polls on the provincial election were quite good overall. This was was not the case with the Ontario sub-samples on polls taken during the federal election. The average error in Ontario understated Conservative support by 6.1 percentage points while overstating all the others, the NDP by the 3.2 points the Liberals by 1.7 and the Greens by 1.1.  TC is still puzzled by the error in polling during the federal election although one can find some interesting discussion of this on Pundit's Guide.  Ekos pollster Frank Greaves is the only one who seriously addressed his own mistakes after the election.

TC observes that the average Conservative support from the beginning of the federal election to the approximate beginning of the NDP surge in Ontario was 41.8% (not too far from 44.4% they actually won) and thereafter it averaged 38.1%. However, I am not sure what that tells us other than perhaps the instability in preferences reflected in the shift had some impact on the measurement difficulties actually experienced.

Ontario likely headed for Liberal majority

There has been closing tick in this election to the McGuinty Liberals.  Eight polls released since Monday by five different firms yield an average of:

Liberal: 37.6 %
PC: 33.2 %
NDP: 24.7 %
Green: 4.0 %

And less than 1% for others. 

This gives the Liberals 58 seats, 29 for the PCs and 20 for the NDP - a Liberal majority.  A minimum of 54 is required for a majority, so uncertainty remains about the issue of majority/minority.  TC thinks the Liberals will certainly win the most seats. It will likely be a majority (the Liberals could win over 60 seats) but there is still some doubt on that score. 

In these circumstances the trend is your friend and the trend is to the McGuinty Liberals.

How close is it in Ontario?

About as close as it could be. Here is the average of the four polls released in the last couple of days:

Liberal	PC	NDP	Green
34.4	34.6	26.4	4.1

The outcome seems likely to depend on asymmetric shifts within the province. In some regions such as the Greater Toronto Area Liberal losses appear to be smaller than in other areas. Overall there will be many close races. A small movement over the next couple of days could shift the election from one party to another.  The average above would give us a Liberal minority based on the 2007 results. 

NDP headed for win in Manitoba

The Friday moring headline in the Free Press said "NDP clinging to lead", but it is clearly enough to ensure victory in next Tuesday's provincial election for Mr. Selinger's party. The Probe numbers are at roughly the midpoint of the other two polls, an average of the three essentially replicates Probe's numbers.

TC does not have an estimate model based on the current boundaries, but if the Probe numbers are accurate the one notable change we can see now would be the loss to the Liberals of both their seats. The NDP would win a majority.  How large is difficult to determine.  TC's estimate is that the absolute lowest number of NDP seats would be 30 (the result that would occur if the PCs win every close race) but it will probably be greater than that.

Methodological Snake Oil

TC wants to make some points about the polling controversy started by the Ipsos commentary about polling discussed in my previous post.

First, there are legitimate unanswered questions about online polls.  There is no accepted methodology.  Partly because of that there is effectively zero transparency and accountability on the part of online polling companies.  For example, on their website at the bottom of a recent poll the Reid group says this:

Methodology: From September 20 to September 21, 2011, Angus Reid Public Opinion conducted an online survey among 1,668 randomly selected Canadian adults who are Angus Reid Forum panellists. The margin of error—which measures sampling variability—is +/- 2.4%, 19 times out of 20. The results have been statistically weighted according to the most current education, age, gender and region Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.

What it doesn't tell you is how large the panel is from which the sample is selected. When it says 'randomly selected' it goes on to say 'who are Angus Reid Forum panelists'. However, the phrase 'randomly selected' on its own implies 'selected from the whole population of Canada'. The subsequent reference to the panel also infers, without saying so explicitly, that they actually come from the Angus Reid panel.

In Canada if it is within a province, one assumes it is a subset of a national panel and perhaps panel size within the province could be an issue. But we don't know the overall size or demographics of the national panel - gender, income, language - let alone the provincial sub-sample. We don't know what methods were used to recruit it. Surely if we are to accept the panel itself as representative we would need to be assured that it was selected at random. Is this case?

We don't know how the panel is contacted or how the surveys are conducted to ensure their integrity. If these are to become commonplace, the polling industry should set some standards that provide some reassurance that there is some validity to all this.

TC doesn't agree with the Ipsos critique of IVR.  These are ultimately phone surveys, an established proven methodology.  The only difference is an electronic voice and answers given on a telephone touchpad.  We already know such polls have obtained good results. See what New York Times polling blogger Nate Silver (who formerly blogged at fivethirtyeight.com) said about Survey USA, which uses this methodology:

... SurveyUSA is a very strong polling firm; no company has done more to contradict the notion that a "robopollster" need be inferior. Although it's not my place to make any endorsements, it would certainly make the life of electoral forecasters easier if SurveyUSA were to get more business.

Competing Ontario polls

Two new polls out in Ontario today ahead of the debate, one with the Liberals ahead, one with the PCs, so which to believe.

An Ekos poll had the Liberals at 34.9%, the PCs at 31.4% with the NDP at 24.7%.  However, Abacus Data had the PCs ahead at 37%, the Liberals at 33% and the NDP at 23%.  The only big difference is actually in the PC number but it is significant.

One way of verifying the credibility of a poll is to look at its internal subgroups.  There is a certain consistent pattern that reappears in poll after poll regardless of overall outcome or source.  If there is an anomaly it should be apparent.  Look on page four of the Abacus poll.  It tells us that the PCs lead among women and voters age 18 to 29.  So younger voters and women support the PCs almost to the same degree as the province as a whole.  However, there is absolutely no way that is true.  PC support is typically older and male to a much greater degree than we see in Abacus.  In the Ekos poll (see page 7) one sees the relative weakness of the PCs among youth and women, and one sees it over and over again in many others.

Abacus was attacked by Ipsos Research (the most accurate pollster in the May 2 federal election) for shoddy methodology (methodological snake oil is how they described it) earlier in this campaign. Abacus made a point in their release of emphasizing that they used a traditional ballot question on this poll (in response to the Ipsos critique).  TC thinks Abacus has more work to do.

Manitoba polls point in the direction of an NDP win

Two polls with conflicting results were released in Manitoba today.  One was a phone poll by Viewpoints Research for CJOB, which reported 41% for the NDP, 32% for the PCs and 5% for the Liberals with 19% undecided.  This gives the NDP about 51% of the decided vote with the Tories at 40%.

By contrast another survey, an online poll by Environics, found the PCs in a narrow lead 45% to 42% over the NDP with the Liberals at 10%.  The clashing methodologies should be noted. Online polls have had some  real problems, so there is a need to be cautious in interpreting the results. UPDATE: TC goofed - the reference I made previously to real success in the U.S. was to interactive voice recognition polls.

Taken together, however, this polling data as well as earlier polls point in the direction of an NDP victory with a reduced majority.  Even in the Environics poll Selinger has a higher approval rating than opponent Huge McFadyen (54% approval compared to 44%). It must also be remembered that the NDP has a more efficiently distributed vote. Large majorities in the rural southwest "waste" more votes for the Conservatives than comparable NDP margins in the city, and the NDP controls the small population northern ridings.  TC estimates that the PCs likely need a four to five point lead to be certain of winning.

Liberal support is so weak that the party may well face a shutout (as TC noted on Saturday).  One can see on this map of the individual polls from the 2007 election results imposed on the new electoral boundaries that the Liberal polls in northwest Winnipeg are now split between Tyndall Park and the Maples, which should deliver both ridings to the NDP.  If Jon Gerrard loses River Heights that would give us a majority government for certain (even if the margin is narrow).

This is the last week of the campaign and we should still see polls from Angus Reid and Probe Research so there will be more information to consider before voting day.

Ontario and Manitoba elections - no obvious winner in sight.

The first thing that needs to be said about these two elections is that by the usual rules of politics both incumbents should have been heading for defeat from the outset.

In the case of Ontario the Liberals are endeavouring to win a third term with a leader with low approval ratings, a year after introducing an unpopular new tax, the HST, that applies to many more goods and services than the old provincial sales tax.  Third terms are highly unusual, while the party that wins the election usually has a well regarded leader, so the Liberals started out with three strikes against them.

In Manitoba the NDP has a new leader in Greg Selinger who, despite his considerable virtues, is less popular than predecessor Gary Doer (however, he has a much higher approval rating than Dalton McGuinty).  And the NDP is trying to win a fourth term, something that has not been done in Manitoba since Duff Roblin.  Winning multiple terms is difficult in most places simply because all administrations eventually accumulate grievances directed at them from various sectors of the public.

There is less than two weeks to go in both campaigns. The clear narrative for both is that they are close but both incumbents could win re-election (in Ontario's case likely as a minority government).

Ontario
A large sample poll in the Toronto Star today makes it clear that the race is extremely close (similar findings appeared in other polls last week).  The Star poll reports that the survey would result in 47 ridings each for the Conservatives and Liberals and 13 for the NDP. The poll is large enough to have results for every riding.  However, some of the results reported don't look right to TC. My forecast model suggests that a tie vote would produce an advantage for the Liberals as they have had the more efficiently distributed vote in the past. In addition TC would expect to see more seats for the NDP than just 13. But it is tight enough to go the either way and many individual riding contests must be very close.

Despite the Liberals' handicaps it appears that attacks on PC leader Tim Hudak (see, for example, this web site: hazardoushudak.ca) have taken their toll. This Ipsos poll from earlier this month reported that voters preferred McGuinty to Hudak as premier.  The disapproval of McGuinty found in the survey noted above suggests that it may be a case of who is the least preferred. 

Both Tim Hudak and NDP leader Andrea Horvath were not well known coming into the campaign.  The NDP has been in the range of 23 to 26 per cent support, well above the 16.8 per cent the NDP won in 2007.  The NDP's poll numbers this summer look like a spillover from the federal campaign and the outpouring of emotion for Jack Layton, so Horvath still must close the deal with voters to do well. However, this Ipsos poll released a few days ago suggests she is making progress.  The poll also makes it clear that Rob Ford has become a huge liability for the PCs in Toronto. His unpopularity could cost them dearly in this election:

A majority (53%) of 1,719 Torontonians polled say Rob Ford being mayor of Toronto makes them less likely to vote for the Progressive Conservatives, while just 9% say they’re more likely to vote for the PC Party

The television debate coming Sept. 27 could make a significant difference. It represents an enormous challenge and opportunity for both Hudak and Horvath.  I suspect there is less on the line for McGuinty but he still must perform well given the tight race.

Manitoba 
Two significant developments yesterday: a poll reporting that a majority think the NDP deserve re-election and a reasonably successful television debate appearance for Greg Selinger.

The most memorable aspect of the debate was Selinger successfully forcing Liberal leader Jon Gerrard to state that he may have had made "a mistake" in voting against a Selinger budget.  Even though PC leader Hugh McFadyen was on the sidelines for this exchange, it was quite important as the role of the Liberal vote in Manitoba elections is critical given that many federal Liberals support the NDP  provincially.

There is some evidence that Liberals are in deep trouble in this election, and the beleaguered party could lose both its seats. Former MLA Kevin Lamoureux has moved to the House of Commons, and his seat has been split in two by redistribution (both are likely to go NDP) while the PCs are making a strong effort to unseat Gerrard in River Heights.

TC thinks the PC's biggest problem may be that they start out so far behind in the City of Winnipeg where they only held four seats entering the campaign.  In 1995 when the party last won an election they won 14 seats in the city.  The PCs recognize this. The Free Press had an article on the PC effort to win the south end riding of Seine River.  TC's view is that the PC's must win that riding and several others in the city (such as Kirkfield Park, Southdale and St. Norbert plus others) to have a chance of winning.

Nevetheless, the PCs have all the advantages that accrue to being able to campaign on "time for a change", and a leader who is showing more poise in his second campaign.  The election outcome remains uncertain.

Ontario polls point to Conservative minority government

The two surveys out this week provide more evidence that a close outcome is a distinct possibility and that means minority government.

The Angus Reid poll points to a thin Conservative majority of 56 seats. However, just one more point for the Liberals would turn that into a minority. The Forum Research poll would give the Cs 52 seats while 54 seats are needed for a bare majority.

The NDP was strong in both surveys and is currently running well ahead of their pace in 2007.

Post-Layton Poll

The new Harris-Decima poll illustrates that the wave of national mourning that accompanied Jack Layton's passing has produced a strong political impact. While the effect is probably going to be temporary, the NDP and Conservatives were tied in this poll at 33% each while the Liberals came in at 21%.

My forecast model suggests it would produce a House of Commons of 131 Conservatives, 118 New Democrats, 58 Liberals 4 Bloc and 1 Green.

Perhaps this is the first sign of real weakness in the Harper majority.

Obama's Economic Dilemma

I think Jon Chait gets Obama's problem with jobs and Congress exactly right:

...if Obama potentially had the votes in Congress to pass another stimulus, it would be worth taking an unpopular vote in order to rescue the economy. Since Obama does not and will not have those votes, he needs to conceive of his plan as a political message. There is no point in holding a message vote when the message is unpopular. 

This seems to be a reality liberals have trouble acknowledging. There are a lot of issues where the public agrees with the left. Economic stimulus does not appear to be one of them. Now, public opinion is fairly hazy and ill-informed about this, and certain elements of economic stimulus can command majorities. But the passage of the first stimulus, at the height of Obama's popularity, shows pretty clearly that people instinctively think that, when the economy is terrible, having the government spend a lot of new money is not going to help. That they're wrong doesn't really matter for the purposes of this question.

The administration floated the idea of using a mortgage refinance plan that would not need Congressional approval and might provide some stimulus, but would still need acceptance by a regulator who is not answerable to the Obama administration. He needs several more ideas like this.

This is the nub of the problem. Obama needs to find some way now to rectify the problem that arises from the inadequacy of stimulus plans two years ago, and he is likely going to have to do it without Congress. One way or the other he needs a great deal of luck in restarting growth, or he will face an enormous obstacle to re-election (he could still get re-elected if the Republicans move too far to the right).

An addendum: a few weeks back Brad Delong summed up the mistakes and missed opportunities of Obama's first year or two in office and what he should do now. It is worth reading.

Overall, it is clear that Obama faces immense obstacles to restarting economic growth. It is not all clear how he gets the U.S. economy moving again, especially given the loony political opposition he faces from Republicans.

Ontario headed for minority government

Two polls out this month (Ipsos and Nanos) strongly suggest that the next Ontario election will produce a minority government. Spring polls suggested a PC majority so it is the Liberals who have momentum. It looks like negative ads like these are taking their toll on Mr. Hudak.

My seat estimates suggest the current polls would produce an exceptionally close result. It is not clear which party would be in first place.

More on Turmel

It is unfortunate that Chantal Hébert was on vacation when the Turmel story broke.  Her column today is a gem:

The reality is that those who ran for the NDP in the last campaign and the vast majority of those who voted for them did so not to revisit the debates of the past but because they wanted to move on.

Many wanted to resume contributing more directly to Canada’s federal life to help craft a progressive alternative to the Conservatives.

A survey commissioned by the now-defunct Canadian Unity Information Office a few years ago revealed that a majority of Quebecers refused to identify themselves as federalists or sovereigntists.

Large numbers of them want out of that particular box....

To all intents and purposes, those who leaked details of interim leader Nycole Turmel’s past links with the Bloc are playing a longer game than that of embarrassing the NDP at a time of relative fragility.

For the moribund Bloc, the best hope for revival lies with a successful demonstration that there is no room within Canada’s national parties for nationalist Quebecers — or at least not unless they are willing to atone for the way they exercised their voting franchise in the past.

It looks like sovereigntist strategists can count on outside help to achieve their purpose.

Alone of all members of Parliament, Quebec’s New Democrats are being asked to account for their past political leanings.

Some self-appointed high priests of federalism have gone as far as suggesting that a public recanting of anything that smacks of a sovereigntist belief is also in order.

The editors of the Globe and Mail, Liberal leader Bob Rae and Stéphan Dion fit the definition of "high priests" as far as TC is concerned. They should be ashamed of themselves.

Another op-ed on the subject worth reading is this one published earlier in the Toronto Star by University of Ottawa academic Claude Denis. An excerpt:

What political planet do English-speaking Canadians live on?

The majority of francophone Quebecers have voted for the Bloc Québécois for the past 20 years. A strong majority of Quebec francophones voted “yes” to sovereignty in 1995. Most of the Quebec left has been sovereignist for a good four decades. So if you’re a francophone Quebecer and you’re on the left, chances are you are or have been a supporter of at least one sovereignist party.

None of this is news or surprising. Is there something not clear? Nycole Turmel is a left-wing, francophone Quebecer. She has been socially and politically active for 30 years. Of course she has had ties to the sovereignist movement.

Britain's riots - Thatcher's grandchildren

This column on Bloomberg news by Pankaj Mishra is the best thing I have read on the British riots. An excerpt:

Britain, of course, is the original home of the free market. As the first country to industrialize, and to have an enormous comparative advantage, it inevitably adopted laissez- faire policies in the mid-19th century. The harsh effect this had on the working classes and the poor was gradually softened by such Victorian institutions as compulsory education, trade unions and social-service societies. The political and economic catastrophes of the first half of the 20th century buried the idea of the self-regulating market; and a new national consensus was built around the welfare state after World War II.

This all changed starting in the 1980s as successive British governments, Labour as well as Conservative, struggled with high inflation, falling industrial productivity and conflict. The illusion that the nation could be saved only through immersion in a self-stabilizing market economy hardened into a revolutionary ideology, embraced by both major parties, that has shaped today’s Britain.

In that sense, if Tony Blair and David Cameron are “sons of Thatcher,” as the journalist Simon Jenkins puts it, the rioters of today are the grandchildren.

A little realism on the right

David Frum has been something of an apostate on the right for some time now, but imagine the teeth gnashing this quote about the post-2008 financial and economic crisis must have engendered:

When people tell me that I’ve changed my mind too much about too many things over the past four years, I can only point to the devastation wrought by this crisis and wonder: How closed must your thinking be if it isn’t affected by a disaster of such magnitude? And in fact, almost all of our thinking has been somehow affected: hence the drift of so many conservatives away from what used to be the mainstream market-oriented Washington Consensus toward Austrian economics and Ron Paul style hard-money libertarianism. The ground they and I used to occupy stands increasingly empty.

If I can’t follow where most of my friends have gone, it is because I keep hearing Susan Sontag’s question in my ears. Or rather, a revised and updated version of that question:

Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? The answer, I think, should give us pause. Can it be that our enemies were right?

To see what the Susan Sontag question was and for the rest of the item, read the blogpost, Were Our Enemies Right? here.

U.S. debt downgrade

Paul Krugman gets it right on the U.S. debt downgrade:

....It’s a strange situation.

On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.

More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation....

In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

It is critically important to remember, as Krugman notes, the scandalous role of the ratings agencies in the subprime mortgage mess, which is all well-documented in Michael Lewis's marvelous book The Big Short.

I passed my copy on and don't have it to quote from but read this excerpt from an interview with Michael Lewis by Terence McNally (the TM in the excerpt below):

ML: The sub-prime mortgage bonds were rated triple A by Moody's and Standard and Poor's. Why? Well, they could give you an argument, but in retrospect, it looks like a very foolish argument.
TM: It looks worse than foolish to me, it looks corrupt.
ML: When you think about corruption, there's the simple kind where I give you $1000 to interview me on the radio so it will promote my book. That's corrupt and we both know it. But there's a different sort of corruption where we're all part of a system that is rewarding us very well to pay attention to certain things and not pay attention to others. We're paid to have blind spots. There's an awful lot of that kind of corruption in the financial system because people's incentives are all screwed up.
Ratings agencies were paid by the people who issued the bonds to put the triple A rating on them. Their incentive is to please the people who are issuing the securities. They can't at the same time independently judge the securities.
TM: Arthur Andersen went out of business for doing basically the same thing with Enron. How could someone not see that they were recreating something which had already failed in a huge way?
ML: Some people did see...The people I find most riveting are the people who saw the magnitude of the coming disaster. They were sane men in an insane world. They would call Standard and Poor's and Moody's and say, "How are you rating these things? Our models show that if house prices even go flat, all these bonds will be worthless." To the question of what happens to these bonds if house prices go down, Standard and Poor's would say, "We actually don't know because there's no place in our model to put a negative number."
TM: Obama, Geithner and the administration are putting out plans for new regulations. This isn't in there?
ML: No. It should be illegal for issuers to pay raters for ratings. It's a bribe. Instead the administration says they're going to give the regulators more authority to evaluate ratings agencies. That doesn't do anything; they already had that authority.

The Turmel Tempest

It is a classic example of a huge fuss being generated in the media over an issue that adds up to nothing.

The fuss has been fed by political opponents who should know better but apparently don't.  For example, Bob Rae was reported to have said today:

What kind of federalism is it that leads someone to join two other parties, both of which are committed to the independence of Quebec, the sovereignty of Quebec and in the case of Quebec Solidaire a socialist Quebec?

Globe blogger and long-time NDP activist Gerald Caplan points out:

...Quebec is different from the rest of Canada in ways we often ignore. Ms. Turmel is one symbol of this difference. For Ms. Turmel -- Québécoise, Canadian, federalist, trade union leader, New Democrat -- to carry a Bloc card for a few years was no big deal.

Some thought that lesson was learned election night. The reason so many Québécois could move en masse from the Bloc to the NDP was not just because Mr. Layton was a great guy to have a beer with. He also shared and represented their values. Mr. Layton was progressive, a social democrat, committed to social justice. So were many Bloc voters who didn’t want Quebec to separate. Those were the social values that the two parties shared and that allowed the massive voting switch once it was clear that the Bloc was an exhausted force.

Maclean's writer Martin Patriquin provides some useful insights. “… it’s amazing how few people have clued into this headsmackingly obvious point, but Turmel willingly ripped up her Bloc Québécois membership card to run for a dyed-in-orange federalist party [emphasis in original]. That alone should be evidence enough that her sovereigntist credentials weren’t quite Parizeau-calibre. If anything, Turmel’s (temporary) ascension to the head of the party, like the NDP’s overwhelming victory in May, is proof positive that detaching the left from the sovereigntist movement isn’t as impossible as it once was. How far we’ve come.”

One should add that not only did Turmel spurn the Bloc, she did so to run for a party that historically had never had much electoral success in Quebec. So she supported a federalist party in a circumstance where she might have reasonably expected that to be a political liability.

The fact that many in Quebec such as Turmel spurned the pro-independence party for a federalist party should be celebrated not mocked. Turmel is a long-time NDP member and supporter, her true allegiance. Her opponents in any case include many with previous sovereignist backgrounds: Liberal Jean Lapierre, who served in Martin's cabinet, was a co-founder of the Bloc, and Maxime Bernier, who is now back in Harper's cabinet, worked for PQ Premier Bernard Landry, a very serious supporter of Quebec independence.

Turmel represents exactly what we want to see Quebecers do about federalism, Mr. Rae, embrace it.

U.S. debt crisis - the real blame belongs with the establishment "centrists"

There are two critical aspects to the U.S. debt crisis. One is that the confrontation is real and may not be resolved quickly, although the pressure to do so will grow exponentially from here on out. The real blame for all this lies with the deficit-phobic Washington centrists. The best explanation for how we got here is outlined in this blogpost by Jon Chait of The New Republic fittingly titled: The Debt Ceiling Crisis And The Failure Of The Establishment, which, as Chait puts it, underestimated " the loony determination of the Republican right".

The other tragic aspect is that the whole debate is wrong-headed and focused on the wrong problems, the debt and deficit, instead of the right ones, short and long-term unemployment and badly skewed income distribution. A not unreasonable discussion of these can be found in this column by former Obama and Clinton advisor Laura D'Andrea Tyson on the jobs deficit.

How soon we forget

"Majority backs Harper’s plan for Senate elections and term limits, poll finds" says the headline on the Globe story.  Great news for Harper and company, right?

However, this Nanos poll from just a month ago tells us that Senate reform is the public's lowest priority, right at the bottom a list topped by health care, about the same level as strengthening the military, traditionally something that doesn't garner much support.

When it comes to polls, context and wording is everything, something you don't see much in the daily press.

Manitoba NDP has a realistic chance to win

With the notable exceptions of Alberta and Newfoundland and Labrador, few provincial governments keep the same partisan colour beyond two terms in government.  The Manitoba NDP has now made it through three terms, so it should be due to lose the next election. Polls over the past couple of years have been pointing in that direction. However, the NDP has continued to lead in the City of Winnipeg in most surveys to date, including polls that give a substantial overall lead to the PCs (this March poll from Probe for example). TC has been convinced for some time that a change in government was coming. Now I am not so sure.

An Angus Reid online poll released on June 7 that measured premier popularity put Greg Selinger's approval rating at 48%, second highest in Canada behind just Saskatchewan's Brad Wall and a gain of 20 points since the previous survey in November 2010. Perhaps this is due to his handling of the flood situation.

A Probe Research poll released on June 29 reported an overall dead heat between the NDP and the PCs at 44% with the Liberals a quite distant third at 9%. This represented a 9 point boost for the NDP.  More importantly it would easily give the NDP a fourth majority despite the overall closeness in the vote.

TC estimates it would deliver 34 seats to the NDP, 21 to the PCs and 2 to the Liberals. The key to this is the historically efficient vote pattern the NDP has achieved since it first won office in 1969.  Simply put, the NDP's margins in the city are smaller than the huge margins run up by the PCs in rural southwestern and southeastern Manitoba - more seats for exactly the same share of the vote. The final factor is that the NDP has had a virtual lock on the small northern ridings since its initial breakthrough 42 years ago.

Using the Probe poll numbers TC can estimate a vote share for every riding. With exactly the same overall vote, the NDP wins its ridings by an average margin of 25.4%, while the PC wins their seats by an average of 36.9%. Therein lies the difference. In the March 2011 Probe poll the PCs had an overall lead of 47% to 35% but still trailed the NDP by six points in the City of Winnipeg. It would have yielded a bare majority for the PCs. But you can see their problem.

The election could still go the other way, but the NDP's structural advantages and Selinger's growing popularity may well give it an unprecedented fourth term.

Assessing the 2011 Election

There is more considered analysis of the 2011 election available now.  TC continues to be somewhat baffled by the Conservative majority and the gap between final polls and voting.

One excellent overall analysis is by Robin Sears, which appears in the current edition of Policy Options.  I thought I had a fairly negative assessment of Michael Ignatieff. He looks worse to me after reading the Sears piece.

There is also an interesting article on the NDP's rise in Quebec by Derek Leebosh. It provides insight on the extensive efforts the party has made in Quebec from time to time since its founding in 1961.

Long-run NDP prospects in Quebec

There has been considerable debate about the NDP's longer run prospects in Quebec, the party having acquired a large Quebec caucus on election night. Some see it as the beginning of a period of dominance, while others call it a 'flash in the pan' comparable to the success of the ADQ in the 2007 Quebec provincial election, which was then eclipsed in 2008.

I think we can look to history for some clues about what to expect. As a consequence of the conscription crises in the two world wars, the Liberals dominated federal Quebec politics with one exception from 1917 to 1984. The exception was the Diefenbaker landslide in 1958 when Quebec voted in the PCs so as not to be left out of the new government. Quebec moved strongly away from the Diefenbaker Conservatives in 1962, just as the quiet revolution was getting underway in Quebec. Diefenbaker had done nothing to strengthen the party there, but PC fortunes were also dropping sharply elsewhere in Canada.  In Quebec, however, the breaking of the old Liberal ties did mean that rural, Catholic, conservative Quebec was open to other forces. Social Credit, led by Réal Caouette, the leader of its Quebec wing, won 26 seats in Quebec in 1962 (compared to the Liberal total of 35). That was to be its high point. The following year after losing 6 seats in the 1963 election, the Quebec wing split from national Social Credit to form the Quebec-based Ralliement Créditiste.  As a party rooted in the social and political outlook of the old pre-quiet revolution Quebec, it was doomed in the long run, but managed to hang on to enough rural seats through the sixties and seventies to dent the Liberal monopoly, until Trudeau wiped them out in 1980.

In 1984 the Brian Mulroney Conservatives swept 58 Quebec seats, a number almost identical to the NDP this year. The Conservative victory was built in part on an alliance with Quebec nationalists such as Lucien Bouchard, who drafted a key Mulroney speech in the 1984 campaign. The speech pledged to right the alleged wrong done to Quebec by Pierre Trudeau when he succeeded in completing the 1981 constitutional deal without the support of the Levesque government. The speech was effectively the first step on the road to Meech. However, Mulroney's efforts to produce a constitutional deal would end badly for him.  The unraveling of the Meech Lake Accord in the spring of 1990 led to the founding of the Bloc Québecois by Lucien Bouchard, after he quit the Mulroney cabinet and crossed the floor, and to the 1995 Quebec referendum five years later.

The Bloc was primarily a nationalist party to be sure, but it also reflected the secular, social democratic outlook that had become entrenched in Quebec political culture as a consequence of the quiet revolution and the René Levesque PQ government elected in 1976. The NDP has now inherited the social democratic mantle of the Bloc, so in one sense it actually represents a degree of continuity in Quebec politics. It appears to have been made possible by fatigue in Quebec with the nationalist project and the role of the BQ, the same sensibility that has made the PQ hesitant to commit to another referendum.

A key moment for Jack Layton was a highly successful appearance on the widely viewed Radio Canada television program Tout le Monde en Parle (loosely translated it means "everybody's talking about it"), identified by La Presse columnist Yves Boisvert as the point when the Quebec opinion started to move his way.  This was followed by an effective performance in the Quebec leaders' debate, where Layton articulated views that would resonate with soft nationalists in Quebec.

Layton made another successful appearance this past Sunday. Pressed on how he would defend Quebec interests in the new Parliament by host Guy Lepage, he responded by saying he would introduce a bill to strengthen the role of French in federally regulated industries, winning immediate audience applause. Moments later, he restated his campaign promise to press for action to limit credit card interest rates - to just as much or greater applause.

On Tout le Monde en Parle program Layton was note perfect. As opposition leader he can sympathize with Quebec but everyone knows he cannot restart the constitutional debate.  Moreover, the NDP won support across the linguistic divide, capturing seats on the island of Montreal with large anglophone and allophone populations. It has a new political alliance that calls for a different politics than that offered by the Bloc.

It was Layton's effective demonstration of empathy for a Quebec-centric view that mattered rather than the specifics. There appears to be no appetite for an early revival of the independence project, making much of the NDP's rhetoric moot for the medium term in any case. The obsession of the English media with the Clarity Act and the Constitution misses the point of the political reality in Quebec. If those things mattered a great deal, Quebec would not have moved so decisively away from pro-independence representation in the House of Commons. This is not to say it could not flare up again.  In the longer run if the NDP wins office the issue could be trickier to manage. Despite Layton's regard for Quebec's sensibilities and support for asymmetry, it is a measure of changing times in Quebec that the NDP platform made it clear that an NDP government will be more centralist on health care. Consider this excerpt:

• We will negotiate a new ten-year health accord with the provinces and territories in 2014. The accord will guarantee a continued strong federal contribution – including the 6 per cent escalator - to Canada’s public health care system – in return for a clear, monitored and enforced commitment to respect the principles of the Canada Health Act and to the integrity and modernization of health care;
• We will work with provincial and territorial partners to:
  • Promote a clear commitment to the single-payer system;
  • Make progress on primary care;
  • Take appropriate steps to replace fee-for-service delivery;
  • Take first steps to reduce the costs of prescription medicines for Canadians, employers and governments;
  • Extend coverage to out-of-hospital services like home care and long-term care.

In addition, Layton committed to going after private health care clinics:

Campaigning in Quebec, Layton criticized the Harper government and called for the growth of private clinics to stop.
"We believe that the Canada Health Act should be enforced," Layton said. "And we don't see Stephen Harper doing that."
Layton said the health care system was being privatized across the country.

Quebecers seem to have become more favourable to the federal government flexing its muscles on issues like this. This Léger poll from May 2010 reported that 62% supported the idea of federal intervention to block a new health fee being contemplated at the time by the Charest government.

On the face of it the NDP's prospects in Quebec look promising. Quebec has become more diverse politically in the 21st century.  In addition to the Liberals and PQ provincially there is the ADQ, the left wing Quebec Solidaire, and talk of a new centre-right nationalist formation.  Federally, four parties hold Quebec seats.  As recently as 2004, federal representation was restricted to the Liberals and BQ in Quebec. So there should be no surprise there might be room for the NDP.

All this diversity could mean that the NDP might not be as dominant as previous parties were, in the sense of sweeping all or most of Quebec seats in most elections. Their success in 2011 was partly an artifact of first-past-the post. Their 42.6% of the vote was almost a 20 percentage point lead over the Bloc's 23.3%, sufficient to give Layton 79% of the seats. The Conservatives have found a home in parts of rural Quebec; the Liberals will likely continue to be strong among west island Anglos; and there is bound to be at least some continuing support for a harder nationalism, so the Bloc could stage a comeback.

The NDP will change Quebec politics but the province will also re-shape the NDP. It might make the NDP less centralist over time, possibly push it to the left on justice issues, prod it on green issues, etc. Clearly the NDP's prospects are rooted in evolving Quebec realities, and therefore could be a key to forming Canada's first national NDP government.