Double Blind

I asked the federal Ministry of Finance a question concerning the comments that the Finance Minister (Jim Flaherty) said in the 2007 fiscal update speech “We haven’t seen taxes this low since Lester B. Pearson was Prime Minister”.

This was on February 15th. I received a Ministry of Finance Acknowledgement (February 19) that said a response will be pending.

Two months later, I received a reply!

Ministry of Finance response.

It turns out they were using tax revenues to GDP ratio – projected to be 15.1% in 2011-2012 after the application of the fiscal update. The last time this ratio was as low was back in 1963-64, according to the letter. The statistics correspond with this.

So kudos to the Ministry of Finance for getting a reply to my question posed out of sheer curiosity more than anything else.

The Bank of Canada lowered the overnight rate by 0.5% to 3.0% today.

Canada, being a geographically large entity, is difficult to manage centrally since it’s rather obvious that BC and Alberta are doing better than the rest of the country and don’t need monetary stimulus at this moment. However, Ontario and Quebec are doing less well due to the manufacturing sector slump and need the stimulus. Guess who wins?

Watch for these interest rate drops (and potentially one more coming if you read between the lines of the Bank of Canada correctly) to continue propping up the real estate market as lending rates are dirt cheap. Right now you can lend short term money from Interactive Brokers at the bank rate plus 1.5%, which is equal to about 4.9% Canadian (due to go down once they adjust for the drop in rates) or 3.82% for US currency.

Just glossing over their 2008 budget, Alberta is ploughing a ton of money into capital projects – 8.7 billion scheduled for this year. They’ve also got plenty of fiscal room and the price of oil can drop significantly and they still will continue to make their alloted surplus.

If you look at their tax advantage, there’s no comparison compared to the rest of the country. The only problem is you’d have to live in Alberta.

This commentary pretty much says it all:

Columnist Lorne Gunter noted that it was environmentalists who demanded biofuels the loudest. He said it turns out that the amount of carbon released into the atmosphere by chopping down rainforests and switching grassland to corn, cane, soybean or palm oil production far exceeds that released by burning oil pumped from the ground or extracted from oilsands.

The original environmental studies advocating biofuels as a way of curbing greenhouse emissions and cleaning the air had not taken this into consideration. Then there is the biofuel revolution’s impact on world food supplies. Gunter said that in Europe and North America, bio-fuels make up less than five percent of energy consumed. However, either through government edict or the desire of corporations to appear “green,” biofuel consumption is projected to double or triple by 2020.

He said that, thanks to biofuel, the World Bank projects global food costs will stay above 2004 levels until at least 2015. Expect more millions to go hungry just to satisfy the desire of industrial-world environmentalists to be seen to be saving the planet. Gunter said the sad irony is that, not only is the developed world’s green conscience starving the rest of the world, it is creating more environmental harm — not less — in the process. He predicted that green crusaders will look to blame someone else for their colossal error, in this case, likely, greedy corporations and conservative politicians.

He acknowledged that it is true that corporations are pouring $100 billion or more a year into biofuel development, and the federal Tories have committed $2 billion to the cause, but asked whose lobbying, advertising and scaremongering created the political pressure that compelled politicians and executives to go “green”: the environmental movement.

Yet more laws of intended consequences in action, or rather a failure to see a system for what it is (complex and multivariable) than saying simply “if we use food for fuel, we can save the environment”.

It will never make economic sense to use biofuels unless if the price of energy is 10 times more expensive than it is – even then we have probably the largest coal reserves in North America. Unfortunately right now coal is a dirty word, but it will get back into style eventually.

My stopwatch had me clocked at 56 minutes and 9 seconds (Update: looking at the Vancouver Sun newspaper Monday it says 56 minutes and 5 seconds), which is considerably better than my last year’s time. I hope the chip registered my start and finish times correctly. I almost shaved off an entire minute. This was a full two minutes below my expected time and quite frankly, I don’t expect to achieve this type of performance again since mostly everything went correct.

I was enrolled in the green category (50 to 58 minute expected race time) and when I arrived at around 9:25am there were already a thousand people in front of me at the designated starting point. It was cold outside, but not too cold – it was almost the perfect temperature.

Eventually at around 9:45am I crossed the start line and went along my way. The course was actually fuller than it was over the previous two years, despite my green bib – I had registered in the green category assuming that I wouldn’t have to compete with too many other people for space, but this turned out to be a completely incorrect assumption – there were plenty of white bibs (59 minute to 1:09) and even some people with strollers that were clogging up the roads.

I finished the first kilometer (which was mainly downhill) in about 5 minutes. My 4th kilometer time was about 22 minutes which put me on track for a 55 minute finish. There were a few moments where people on the left hand side were walking and preventing people from running from getting through, which was annoying to no end. At the 5th kilometer, the time was roughly 27:30, and I walked up the hill to the Burrard Street bridge, but at this point my feet weren’t too good, but the worst of it had passed. Upon reaching the top of the bridge, I pretty much ran the rest of the way, only taking two very short 10 second walks.

When approaching the Cambie street bridge, I was already flying by other people (taking advantage of the slight downhill on this stretch) and realized that I could easily break my previous year’s time, so I went for it and just sprinted up the bridge deck, and down to the finish line. I noticed at the finish line that people were stopping just at the electronic timing mechanism since it was taking quite some time for the people to snip off the chips from the shoes.

In terms of energy, I was doing fine throughout the entire race, although I felt around the 3-4km mark that my body was clearly searching for the batteries, but they came back after the Burrard Street bridge. My feet actually started to get “numb” on the bridge (a huge sign that I have shin splints), but oddly enough this made it easier to run, and run a lot faster.

So this was almost a picture-perfect run, with minimal disruptions. I also think a good decision was to avoid the water breaks completely.

I’ll be back next year, but I won’t have a clue how to beat this year’s time. I’ll need to figure out a good way to run faster without burning myself out.

(Update: Declan posted his time – he improved from 58:22 to 46:45!!! Holy cow! Somebody help him with his secondary objective…)

Matt Heaton runs Bluehost (which is where this weblog is operating from) and he complains about credit card company policies. When I did some research on what it took to open up a merchant account (this was a few years ago), I realized that credit cards are quite the friction on prices in society – almost everybody pays for things using credit cards. Retailers have to incorporate the cost of using credit cards (typically around 3% once everything is factored in) in their pricing.

The question is – is having employees handling cash cheaper or more expensive than the 3% transactional cost?

Debit cards have mitigated this problem to a degree, but there are still issues with debit fraud and also the lack of consumer protection related to debit cards. From a retailer’s perspective, they love it if you use debit transactions – it’s much cheaper and there’s no concept of a “chargeback”.

My hope is that somebody like Google Checkout introduces some competition for the credit card market. Right now they are only allowing sellers in the USA and the UK and not Canada.

Whenever governments cut taxes, I frequently hear people saying “the rich get so much of the tax cut, it is unfair”. The reason for this is because high income individuals pay more taxes to begin with. Here’s probably the best story I encountered that explains it:

Tax Cut Explained

Because it is tax season. . . Let’s put tax cuts in terms everyone can understand.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Because you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man,” but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”

“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.

For those who do not understand, no explanation is possible.

This is the first time I can recall seeing snow here so late in Spring. I love it!

Of course, this must be attributed to global warming… err, climate change!

The BC government gave the green light to the northwest alignment of the Coquitlam skytrain extension. This, in conjunction with the earlier decision to implement skytrain opposed to light rail, is a no-brainer decision.

Every node that gets constructed on the skytrain network makes the rest of the network more valuable. To put in a more inefficient (albeit less expensive) LRT system would weakens the “reach” of the transit network.

Eventually a “New Westminster-Richmond express” route would have to be considered as this clearly will be the last link to having a huge number of people north of the Fraser river within 45 minutes of reach to almost anywhere else in the network.

Today was my last training run – I ran for about 40 minutes outside and it went OK. The next time will be Sunday morning when the Sun Run takes place. I still haven’t solved my speed problems – my stride is not very long and my heart rate is too high for what I’m doing.

Unfortunately, my timing would suggest that I will not be able to beat my 57 minute time last year; mind you, last year I was saying the same thing so I truly do not know what my performance will be. I’m estimating between 58 and 59 minutes.

However, my training has been better this year and the timing of my last training run was optimal – two days of rest.