Sunday, January 30, 2011

Corporate Tax Cuts - Do They Really Create Jobs?

In the past number of weeks, there has been a great deal of mainstream media coverage, in both Canada and the United States, about federal government implementation of corporate tax cuts in an effort to both create jobs and to remain competitive so the jobs existing in both countries don't go shopping for a more tax-friendly regime elsewhere.  Governments are trying to convince voters of the validity of their "drop the taxes and they will come" philosophy when it comes to corporate taxes and jobs.

Let's take a look at the corporate tax policy and unemployment in a country that has been in the news lately regarding its rather weak economy and its inability to manage its own debt, requiring a massive bailout - Ireland.  I'll compare Ireland's experience with corporate tax levels and employment with its fellow European Union Member States.

Let me open this posting with the observation that Ireland's current fiscal state is largely a product of an under-regulated banking sector and an over-heated housing market.  Those issues may well have affected Ireland's unemployment rate, however, one would think that if corporate taxes are low enough, that companies will continue to create jobs for non-domestic consumption; no matter how bad the local economic situation is, corporations should prefer to do business (resulting in the creation of jobs) in low tax regimes.

Let's start by looking at the corporate tax rates for all EU Member States.  From the European Union's Europa website, here is a chart showing the top statutory corporate tax rates for all EU Member States:

In the 27 countries that make up the EU, the average corporate tax rate in 2010 was 23.2 percent; this rate is down 8.7 percentage points from 31.9 percent back in the year 2000.  To compare, the average personal income tax rate in 2010 was 37.5 percent, down 7.2 percentage points from 44.7 percent in 2000.  The top three corporate tax rates are found in Malta (35 percent), France (34.4 percent) and Belgium (34 percent) and the lowest three corporate tax rates are found in Bulgaria and Cyprus (both 10 percent) and Ireland (12.5 percent).  From the average corporate tax rates noted above, you can see that Ireland's corporate tax rate is just over half of the average of all 27 EU Member States and third lowest overall.

The largest decreases in corporate tax over the past 10 years were recorded in Bulgaria (down from 32.5 percent to 10 percent), Germany (down from 51.6 percent to 29.8 percent) and Cyprus (down from 29 percent to 10 percent).  Ireland's corporate tax rate dropped from 24 percent in 2000 to 12.5 percent, a drop of 11.5 percentage points or 47.9 percent.  In that period of time, Ireland's personal income tax dropped by 3 percentage points or 6.8 percent from 44 percent to 41 percent.  Corporations in Ireland are experiencing a massive drop in taxes at the expense of individuals who have barely seen their tax level budge.  In fact, recent increases to Ireland's VAT will pretty much negate any individual income tax savings.  It's always interesting to see how much of government's revenue burden is being borne by individuals versus massive and highly profitable corporations.

Now let's look at Ireland's unemployment situation for September 2010 and compare it to all other EU Member States as well as the United States and Japan:

Here's a map showing the same thing.  The darker green colours show higher unemployment and the yellow colours show lower unemployment.  Note again, that while Ireland isn't the darkest green, it is a rather appropriate shade of green:

Here is the link for the chart that the unemployment graph data came from and here's the chart showing the country-by-country monthly unemployment data for 2010:

I'm using the statistics from September 2010 since the country data is the most complete.  For the month of September 2010, the average European Union (27 country) rate was 9.6 percent.  The highest unemployment rate was 20.6 percent in Spain, second highest was Lithuania at 18.3 percent and third highest was Latvia at 18.2 percent.  Ireland comes in with the 6th highest unemployment rate of 13.9 percent after the aforementioned Spain, Lithuania and Latvia as well as Estonia and Slovakia.

Now let's look at the unemployment rates for the countries with the highest corporate taxes.  Malta (corporate tax rate 35 percent) has unemployment of 6.5 percent, France (corporate tax rate 34.4 percent) has unemployment of 9.7 percent and Belgium (corporate tax rate of 34 percent) has unemployment of 8.4 percent.  All three of these "corporate tax nightmares" have unemployment that is far lower than Ireland's rate of 13.9 percent and in the case of Malta, less than half.

To summarize this data; Ireland has the third lowest corporate tax rate, well below the EU average, but has the sixth highest unemployment rate, well above the EU average.  One cannot conclude that Ireland's low corporate tax rate has not particularly led to job creation since the joblessness is, at least in part, due to other factors in the economy.  As well, one cannot particularly conclude that the ultra-low corporate tax rate has bailed out Ireland's economy by creating untold thousands of jobs, particularly now when the country needs jobs the most.  Despite the very low tax rate in comparison to its neighbours, Ireland's corporate tax policy is not benefitting the 13.9 percent of unemployed Irish workers.  Yes, it is possible that Ireland's current unemployment situation could be far worse without low corporate taxes but we'll never know the veracity of that relationship just as we'll never really know how much the low tax rate was actually responsible for job creation now or in the past.  My suspicion is that the uncertainty of the relationship between corporate tax levels and job creation will apply to Canada and the United States as well.

Voters in Canada, the United States and other nations where governments are touting low corporate tax rates as the panacea for all the economic and unemployment woes facing their economies had better think twice when examining this issue.  As seen from the example of Ireland, jobless rates are affected by many factors, corporate tax rates being only one of them.  The best laid plans of government do not always come to fruition, and in this time of rapidly mounting deficits and debt, corporations should not be excused from paying their share of government revenues.  It should not be the responsibility of individual tax payers to cover a larger proportion of government revenues while corporations use their tax savings to pad their profits and ultimately their share prices.

Nothing in economics is certain and the relationship between corporate taxation and job creation is no exception.

Thursday, January 27, 2011

Japan: Downgrading their Debt

On January 27th, 2011, Standard & Poors announced that they downgraded Japan's sovereign debt from AA to AA- because of concerns over the country's debt, deficit and deflation.  This follows a downgrade from Aaa to Aa2 by Moody's Investor Service back in May 2009.  

Since I had originally posted on these three issues back in August of 2010, I thought perhaps it was time for a brief update on Japan's fiscal situation, especially in light of this weeks news that the Congressional Budget Office is predicting a $1.5 trillion deficit for the United States in fiscal 2011.

Please note that for the purposes of this posting, I am using a conversion rate of 1 USD equals 83 Japanese yen.

According to Japan's Ministry of Finance publication Japan's Fiscal Condition dated December 2010, Japan's "long-term debt outstanding of central and local governments" at the end of the fiscal year 2010 was estimated to be $10.458 trillion (¥868 trillion) or 181 percent of GDP.  In the draft budget for the fiscal year 2011, this is expected to rise to $10.735 trillion (¥891 trillion) or 184 percent of GDP.  Here's a chart summarizing the situation:

Japan is budgeting for a deficit of $285 billion (¥23.654 billion) for fiscal 2010 and forecasting a $274 billion (¥22.749 billion) deficit for fiscal 2011 as shown in this chart:

Here is a very interesting graph showing Japan's growing gap between tax revenues and total expenditures since 1975; note that government tax revenues in blue are trending down while government expenditures in red are generally still trending upwards.  One has to wonder how much of this is due to an aging demographic and mounting interest payments on the country's growing debt.  As well, please note that the grey bars show the government bonds that have been issued to cover the deficits:

Here is a chart showing the total balance of outstanding government bonds.  It's interesting to see that the bond balance of ¥668 trillion yen will take approximately 16 years of general account tax revenues (at ¥41 trillion) to reduce the balance to zero assuming that all government tax revenue goes to pay off the debt.  

As well, the government calculates that the debt per family of four is ¥20.94 million ($252,290) and that the disposable income of an average family is ¥5.13 million ($81,429).  These are the kind of numbers that most people can relate to whereas the concept of debt-to-GDP can be very abstract.  In comparison, the United States debt is $14,060,011,229,556.38 which works out to $183,190 for a family of four.

Here's a chart showing the trends in the interest owed on the debt and the average interest rate on the debt outstanding.  It is most fortunate, for Japan, that they have had a decade of very, very low interest rates otherwise the debt situation would have reached the critical point long ago.  As it stands now, for fiscal 2011, Japan will owe $119.28 billion (¥9.9 trillion) in interest:

For comparison, here are the interest on the debt statistics for the United States for this fiscal year (by month) and back to 1988:

Here is a breakdown of Japan's federal government expenditures by category over the past 50 years.  Note how Social Security expenditures ramp up, most markedly between 2000 and the present and how they are now the largest single government expense.  This is a direct result of Japan's aging population and is an issue that many Western governments will face as the baby boomers pass into retirement:

Lastly, here is a comparison of general government net debt as a percentage of GDP over the past 15 years for Japan, Italy, the United States, France, the United Kingdom, Canada and Germany.  Japan is, by far, the worst offender when it comes to their debt-to-GDP ratio, however, notice that most other countries' ratio ramps up as a result of stimulus required during the Great Recession:

Let's take a brief look at Japan's inflation rate over the past 30 years:

Now let's look at their 10 year bond interest rate:

As you can see, deflation is, for the most part, firmly entrenched in Japan's economy.  As well, the Bank of Japan's decade-long program of quantitative easing has kept interest rates at extremely low levels since 1998.  Despite that, Japan's economic growth has been modest at best with rising unemployment and growing social unrest.

It is always interesting to see the Japanese economy in action.  In so many ways, it is a precursor to what will likely happen to the economies of many Western nations, particularly those with masses of baby boomers about to reach the years when they expect to access entitlement programs like government-funded health care and pension plans.  Japan seems to have arrived at that junction in its economic history first and I would suggest that our governments had better learn from Japan's experiences before it is too late.

Wednesday, January 26, 2011

The Congressional Budget Office's $1.5 trillion number - How big is it?

The Congressional Budget Office released the following today:

For 2011, the Congressional Budget Office (CBO) projects that if current laws remain unchanged, the federal budget will show a deficit of close to $1.5 trillion, or 9.8 percent of GDP. The deficits in CBO's baseline projections drop markedly over the next few years as a share of output and average 3.1 percent of GDP from 2014 to 2021. Those projections, however, are based on the assumption that tax and spending policies unfold as specified in current law. Consequently, they understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law.”

Basically, the $1.5 trillion deficit is a best case scenario.  If certain tax policies do not expire (and we all know which ones those are), all bets are off.

As I’ve said before, numbers as large as $1,500,000,000,000 are something that we, as mere mortals, are not able to relate to, especially when they are preceded by a dollar sign.  Let me help you with that.

The $1.5 trillion would buy:

Enough iPads (at $499 each) to supply them to 3 billion people (the population of India, China and the United States combined).  Just think where Apple stock would be then!

Enough median priced homes in Las Vegas (at $123,000 each) to house 12.1 million families.

Enough Sony 60 inch 3-D ready televisions (at $4299.98 each) to make 348.8 million men very happy.

Enough 2011 base model Cadillac Escalades (at $79,910) to help 18.8 million families keep gasoline stations in business.

…and, if split evenly, every American would get a $4885 share.  Sadly though, that's our individual share of the deficit (and resulting federal debt increase).

Unfortunately, all it’s going to create is misery.  Sorry.

The Real State of the Union in Five Screenshots

After listening to President Obama’s State of the Union speech last night, I thought I’d post on the real state of the Union using just 5 screenshots:

2.)   The interest paid on the debt to the penny to December 31st, 2010:

The most critical of these issues is the massive and growing amount of interest owing on the debt since it is already impinging on the federal government’s ability to fund entitlement programs like Social Security, Medicare and Medicaid. 

God help us all if interest rates should ever rise to historical norms.

Tuesday, January 25, 2011

Las Vegas - One Hurting Real Estate Market


The Case-Schiller report for November 2010 shows that Nevada is among eight U.S. cities that hit new lows in house prices since they peaked in 2006 - 2007.  The report shows that Las Vegas real estate prices are down 57.2 percent from its high in August 2006.

Original Posting:

Las Vegas, Nevada has the rather dubious distinction of being America's leading city when it comes to foreclosures in 2010.  In 2009, a rather stunning 12.1 percent of homes had been served notice.  According to RealtyTrac, during the month of December 2010 alone, one in 84 homes in the State of Nevada received a foreclosure filing.  There were a total of 74,641 foreclosed homes with an average foreclosure sales price of $133,253.  Clarke County, the home of Las Vegas, had the lion's share of the foreclosure business with 61,944 homes under foreclosure with an average sales price of $129,771.  In the month of December 2010 alone, the city of Las Vegas had foreclosure documents filed on one in every 76 homes with 44,072 homes under foreclosure at an average sale price of $127,011.  The median price for ALL home sales for the three month period from October to December 2010 was $123,516.  This is down from $300,000 five years ago and down from $133,000 last year.

Despite the drop in real estate prices, Las Vegas also has the honour of being one of the worst housing values as ascertained by a North Carolina-based company by the name of Local Market Monitor.  Their analysis includes many factors including unemployment and job growth rates and the number of housing permits in the market in conjunction with an assessment of the price cycle in the particular market.  Once the impact of market imbalances are removed (i.e. temporary imbalances between the growth of the population in the market and the number of new homes being built) are removed, Local Market Monitor is able to make a prediction of where house prices will be in the next two to three years.  In the case of Las Vegas, there are two main issues working against the market; high unemployment and an oversupply of housing.  This has led to a drop in the value of Las Vegas homes of 52 percent from their peak three years ago.

Here are two graphs that depict the Las Vegas real estate horror show for the past five years:

Notice how the median price of one bedroom homes is down 40 percent year-over-year?  That's got to hurt...and badly.  The same one bedroom homes that sold for $48,000 between October and December of 2010, sold for $144,000 5 years earlier.  In the past five years, the median price of all homes has dropped from $300,000 to $123,516; that's a 58.8 percent drop in price, putting many "homeowners" under water and explaining the huge number of foreclosures.

Now let's take a look at the employment situation in "Sin City".  According to the Bureau of Labor Statistics (BLS), in November 2010, Las Vegas had the distinction of having the 18th worst employment situation in the United States with the official number of unemployed (U3) standing at 14.3 percent.  That puts them in 354th spot out of 372 cities, behind Flint, Michigan (12.5 percent and 333rd spot) and Detroit, Michigan (12.0 percent and 322nd spot).  To make things worse, if we were to add the 6 to 7 percent of workers who are working part-time for economic reasons and who are marginally attached to the labour force, Las Vegas would have a U6 unemployment rate of between 20 and 21 percent.  It looks like real estate isn't the only thing suffering in Las Vegas, doesn't it?

Now let's take a brief look at some examples of homes for sale in Las Vegas.  As an aside, if you do a Google search on Las Vegas foreclosures, the search counter showed 1,550,000 results.  I just used the website for my research.

Here's a bank-owned three bedroom, two bathroom 1180 square foot home located at 633 N 22nd Street.  I apologize as there are no photos of the house available today, however, in the past there were a number of interior and exterior shots.  I included the house in this posting to show readers that houses actually do sell well above the asking price, albeit well below the historical price.  The house was listed at $19,900 and was assessed at $12,840 in 2010 with property taxes of $422.  It actually sold on January 3rd, 2011 for $30,500.  This is down from an assessment of $41,213 in 2008 and property taxes of $936.  According to the property history, prior to this year's sale, the house was last sold on August 5th, 2003 for $125,000.  That's nearly a 75 percent drop in value.  There is no doubt that the place needs a lot of work, unless of course you don't mind spray painted graffiti and boards on the windows.  What is rather amazing is seeing how much the value of the house has dropped in just over 7 years. 

Here's another three bedroom, two bath bungalow located at 2237 Brendan Lane that has an asking price of $23,000 (with a contingent offer).  

From the exterior photos, it looks well kept and appears to be lived-in.  If you look through the rest of the photos, I'm confused as to whether or not the canyon, hospital and ferris wheel are included in the price or if the realtor just wanted to submit his favourite photos.  This home last sold on March 31st, 2005 for $105,000 and once again, the property tax assessments have dropped from $28,200 in 2008 to $13,760 in 2010.

Here's one last foreclosure located at 4895 East California Avenue.  The asking price for this rather small 2 bedroom, 2 bath bungalow is $25,000.  

From the photos of the interior, it looks like it needs a helping hand, most particularly in the bathroom.  What is amazing about the price history of this bungalow is that it last sold on October 10th, 2006 for an amazing $200,000.  The asking price is an astonishing 87.5 percent below its last selling price!  Once again, the property tax assessment has dropped from $50,573 in 2008 to $16,322 in 2010.

For a few laughs, let's just take a quick look at the opposite end of the spectrum and see how the other half lives.  Should you happen to have slightly over $37 million lying around looking for somewhere to go, this is the place.  Located at 7030 Tomiyasu Lane, this 73,000 square foot mansion is located on an 11.17 acre estate.  

Just in case you have a large family or a lot of friends (and you most certainly will have friends that you didn't know you had if you buy this place!), there are 18 bedrooms and 27 bathrooms.  It is surrounded by a 10 foot high stone wall to keep out the unwashed masses, has separate guest houses and staff quarters, a stable, tennis courts, discotheque nightclub and his and hers spas.  This is such an elite listing that it even comes with its own tour video.  Now you'll really own something worth bragging about.  A note of caution though, unfortunately in 2010, the property taxes were $157,310 but I guess if you have to ask about the taxes, you can't afford to buy!

I hope you enjoyed your little tour of the most distressed real estate market in the United States.  It will most likely take the better part of a decade before the real estate market in Las Vegas returns to historical prices.  Apparently, in the end, it's not all about living where it never snows!  As well, from the listings that I looked through, it looks like there is even further proof of just how polarized American society is becoming.  The have-nots have nothing while the haves play on their tennis courts and spend their evenings in their own private discotheques.

Sunday, January 23, 2011

China - 10.2 million barrels of oil per day and counting

The International Energy Agency recently released its monthly Oil Market Report for December 2010 and it contained some very interesting statistics. 

During the month of November 2010, for the first time, China's oil consumption has risen above 10 million barrels of oil per day (BOPD) reaching a high of 10.2 million BOPD.  Much of the increased consumption was due to the large-scale use of diesel-fueled electrical generation after local governments closed coal-fired plants and rationed electricity to meet central government efficiency and emissions targets.  These measures may have resulted in increased consumption of approximately 200,000 BOPD.  We still have to keep these numbers in perspective; on a per capita basis, China consumes slightly more than one-tenth of the oil that is consumed by the United States at 2.3 barrels of oil per person per year versus 21.8 barrels of oil per person per year.

In the month of November, Asia's overall oil demand rose an amazing 8.3 percent or 1.6 million barrels of oil per day on a year-over-year basis with China's demand growing by 15.1 percent year-over-year.  In the last year, demand grew by 2.7 million BOPD.  Here is a graph showing China's domestic oil demand by quarter:

China's imports were up 17.5 percent year over year to 4.8 million barrels of oil per day, up less than originally predicted because domestic offshore production was 200,000 BOPD higher than expected and reached 4.3 million BOPD in November 2010.  Here is a graph showing China's domestic oil production by quarter:

Here's a graph from the IEA's 2010 World Energy Outlook report showing China's share of the projected global increase in demand for various forms of energy and comparing their contribution to increased demand for the years from 2000 to 2008 to 2008 to 2035:

Notice how China's increased demand for oil imports is projected to reach 84 percent of the world's total increase in oil imports and their increasing demand for oil is projected to reach nearly 60 percent of the total increase in global oil demand between the years of 2008 and 2035.

Here is another analysis of the growth in China's energy requirements.  BP has also done an examination of China’s demand growth between 1990 and 2030 in their Energy Outlook 2030 publication.  Between the present and 2030, they anticipate that China and other non-OECD Asian nations will require an additional 13 million BOPD, accounting for three-quarters of the net global increase in oil demand.  Here are two charts showing projections of China’s increased demand for oil by economic sector and how their liquids demand on a per capita basis is projected to rise.  Once again, note how small their per capita oil demand is compared to other Asian nations:

BP predicts that China’s consumption will rise by 8 million BOPD to 17.5 million BOPD by 2030 and will overtake the United States as the world’s largest oil consumer (the country is already the world’s largest overall energy consumer).  Growth in demand will come from both transportation and industrial needs until 2020 and from transportation needs between 2020 and 2030.  Despite the ramping up of China’s demand for oil, the country only uses oil for about 20 percent of its total fuel needs which is low by historical standards considering the ramping-up of their economy.

As I have stated before, China and other non-OECD Asian nations are already acting to secure their energy futures.  China is providing economic assistance to oil producing nations around the world (particularly Angola as discussed here) and the country’s oil industry is very active in acquisition, exploration and development around the world.  As the peak in oil production is reached (if it hasn’t been already), the competition for the world’s depleting, finite supply of liquid hydrocarbons will intensify.  Since, at this point in time, the world’s economy is addicted to oil, we have to face the fact that unless we move with deliberation toward alternative sources of energy (without even mentioning the environmental impact of continuing our dependency on fossil fuels), this competition will likely lead to military action as nations move to secure their energy futures.   It is obvious that China is rapidly becoming a very large piece of this puzzle and that their impact on the world's energy will continue to grow in the coming decades.  Both of the scenarios referenced in this posting assume that world oil production will continue to grow and that the demand for oil by OECD nations will drop.  What if that doesn't happen?

As an aside, by the end of 2011, China is expected to possess the ability to store 281 million barrels of oil in reserve, equal to 60 days of imports.  China began its program of strategic oil reserve storage in December 2007 when it set up the China National Petroleum Reserve Centre.  The first phase of construction was completed in 2008 and had a storage capacity of 14 million tons.  The second phase of construction commenced in September 2010 and the third phase will be completed by 2020 when China will have the ability to store nearly 600 million barrels of oil, a four month supply.  The Reserve will assist China’s economy by sheltering the country’s industries from rapid price increases.

Friday, January 21, 2011

Is Stephen Harper about to make a deal with the Devil?

In recent days, various articles in the mainstream media have been suggesting that the upcoming Conservative spring budget may create common ground between the Harper government and the NDP. Mr. Harper needs the support of Jack Layton's party if he hopes to get his sixth minority budget through the house and it appears that, according to NDP finance critic Tom Mulcair, common ground between the two parties may exist  on assistance to low-income seniors and the unemployed.  Here is a quote from the December 28th, 2010 issue of the Globe and Mail:

"As Prime Minister Stephen Harper’s government prepares its sixth minority budget, it is increasingly directing kind words to a party it has previously attacked as irresponsible “socialists.”

Liberal Leader Michael Ignatieff’s recent decision to heighten election talk and all but rule out his party’s support for the next budget leaves the government looking for alternatives. Mr. Harper vilified the Bloc Québécois as “separatists” in his successful campaign to torpedo the 2008 move by the Liberals and NDP to form a coalition government with Bloc support, leaving the NDP has his only remaining dance partner.

NDP finance critic Tom Mulcair said he agrees with Finance Minister Jim Flaherty’s recent assessment that the two of them found some common ground during a private meeting on the budget. He said those areas included a need to help low-income seniors – perhaps by enhancing the Guaranteed Income Supplement – and possibly renewing incentives for energy-friendly home renovations. Mr. Mulcair said polling shows no party stands to gain now from an election.

“There’s not a heck of a lot that would change,” he said in an interview, predicting a price will be paid by any party that is seen as responsible for triggering an unnecessary election. Yet the NDP’s hints of support come with a major caveat that would be a hard swallow for a government that prides itself on lowering corporate taxes: Mr. Mulcair said the NDP wants future corporate cuts to be more targeted to ensure companies are investing in jobs and productivity.

“If the budget includes the same type of blind, across-the-board corporate tax cut that the Conservatives have been doing in the past, it is highly unlikely that the NDP caucus would ever be able to support such a budget,” said Mr. Mulcair.

In a recent year-end interview with the Reuters news agency, Mr. Flaherty said his meeting with Mr. Mulcair left him with the sense that there was some “common ground” between the two parties. The minister listed skills training, retraining of workers, the forestry sector and older workers as examples of areas where the two parties have worked together in the past.

The Prime Minister’s spokesman, Dimitri Soudas, also singled out NDP Leader Jack Layton’s efforts for praise in an e-mail this week to reporters announcing the government would invite Burmese pro-democracy leader Aung San Suu Kyi to Canada."

It certainly is interesting to see Canada's right-leaning Prime Minister cozying up to and actually complimenting the leader of those who exist well to the left of the political spectrum, isn't it?  As background information, during Mr. Harper's tenure as Prime Minister, he has relied on the Bloc to pass his 2006 and 2007 budgets, Liberal abstentions to pass his 2008 and first 2009 budgets, the Bloc and NDP to pass his second 2009 budget and Liberal abstentions to pass his 2010 budget.  One might ask what happened to democracy in Canada but that's for another time.

There is one thing that the mainstream media and the NDP seem to be forgetting.  Way, way back in June of 1997, a younger version of Stephen Harper gave this speech to a Montreal meeting of the Council for National Policy, a right-wing, Christian-based United States think tank.  In that speech, he discusses a wide-ranging number of issues, some of which are quite insulting to Canadians.  He also gave his audience a primer about how the legislative system works (or doesn't work, in his opinion) in Canada and makes certain that he shares his opinion about Canada's five major political parties; the NDP, the Liberals, the Progressive Conservatives (remember them?), the Reform and the Bloc Quebecois.  One thing he made certain to point out to his American audience was the following about one particular party:

"Let's take the New Democratic Party, the NDP, which won 21 seats. The NDP could be described as basically a party of liberal Democrats, but it's actually worse than that, I have to say. And forgive me jesting again, but the NDP is kind of proof that the Devil lives and interferes in the affairs of men.

This party believes not just in large government and in massive redistributive programs, it's explicitly socialist. On social value issues, it believes the opposite on just about everything that anybody in this room believes. I think that's a pretty safe bet on all social-value kinds of questions.

Some people point out that there is a small element of clergy in the NDP. Yes, this is true. But these are clergy who, while very committed to the church, believe that it made a historic error in adopting Christian theology.

The NDP is also explicitly a branch of the Canadian Labour Congress, which is by far our largest labour group, and explicitly radical.

There are some moderate and conservative labour organizations. They don't belong to that particular organization."  (my bold)

My, my, my but Mr. Harper certainly has some strong opinions about those who lean to the left, doesn't he?  Even by Canadian standards, those are some pretty extreme views toward your political opponents.  I particularly enjoyed his reference to "the Devil" and how any clergy who would happen to lean toward the NDP could not possibly be "true Christians" unlike, of course, those who were sitting in his audience.  

While I do realize that the speech is 13 years old, Mr. Harper was a 37 year old, seasoned politician by that time; he had run in two federal elections, he had won a seat as an MP in Calgary West and had spent several years writing political policy for the fledgling Reform Party.  As I've said before, this is like looking at an actress without makeup, this is the candid Stephen Harper who is not trying to get the votes of Canadians.  This is the completely candid Stephen Harper, something Canadians rarely get an opportunity to see or hear.

In light of the recent news about a potential agreement between the NDP and Stephen Harper's Conservatives and the above noted speech, there are three options regarding the contents of the speech in the context of an alliance between the two Parties:

1.) Stephen Harper was wrong all along; the NDP are not the spawn of the devil so it's okay to make a deal with them.

2.) Stephen Harper really does believe that the NDP are the spawn of the devil but is opportunistic enough that he will make a deal with just about anybody if it keeps him in power and furthers his agenda.

3.) Stephen Harper was just kidding around with his right-wing American audience by vilifying Canada's political left.  Really, he didn't mean any of it.  Really.

Apparently, Canadian politics does make for some very, very strange bedfellows...and none more so than Stephen Harper and Jack Layton.  I'd suggest that Jack Layton take a look at this speech before deciding whether or not to vote for Canada's spring budget.

I wonder who will be sleeping on the right side of the bed?


Globe and Mail, December 28th, 2010

Toronto Sun, January 13th, 2011

Tuesday, January 18, 2011

China's Growing Gender Gap - Another Side-effect of the One Child Policy

Updated November 2013

Sometimes, the best laid plans end up with unintended consequences.  As I posted here, China's one child policy has had a massive impact on their demography.  As many demographers have noted, the policy is already affecting the age distribution of China's citizens and will ultimately impact the number of younger Chinese that will, of necessity, have to support a rapidly growing population of senior citizens by the year 2050.  From a 2004 report "China's Population: New Trends and Challenges" by the Population Reference Bureau, in 1982, only 8 percent of the population was over 60 years of age.  That had risen to 10 percent by 2000 and it is anticipated that nearly 16 percent of China's population will be over 60 by the year 2020 and 27 percent by 2050.  This is in part due to reduced mortality which has led to longer lifespans but at least part of the blame has to be laid at the feet of China's one child policy.  

Here is a chart showing the changing number of China's over 60's with time:

The one child policy was borne of necessity.  The rapid population growth of the 1950s and 1960s led to a situation where two-thirds of the population was under the age of 30 and those who were born in China's baby boom were starting to enter their reproductive years.  In order to prevent China from outgrowing its ability to provide food for itself, the government implemented a short-term policy that governed the size of Chinese families.  The regulations included restrictions on the minimum age of marriage (20 for women and 22 for men), the number of children allowed per family and the spacing in years between children where more than one child was permitted.  The control of China's population planning is in the hands of the State Family Planning Bureau.  In general, the one child policy applies most rigorously to 35 percent of Chinese families; it is strictly enforced for urban residents and for government employees, however, waivers are granted where the parents are in high risk occupations, come from single child families or where the first child in a family is handicapped.  In rural areas, approximately 65 percent of Chinese families are allowed a second child after meeting certain criteria, a second child is most often allowed after five years but permission is most likely to be given where the first child is a girl since boys are preferred.  The remaining 5 percent of the population are allowed to have a second child with no conditions applied.

Here is a look at the changing fertility rate in China for the past 40 years:

The one child policy has had a marked impact on the use of contraception in China.  Eighty-seven percent of women use a form of contraception, most often IUDs or sterilizations.  Surprisingly (at least to me), the incidence of abortion in China is relatively low with only 25 percent of women having had at least one abortion compared to 43 percent in the United States.

Another unintended consequence of the one child policy becomes readily apparent when we look at the distribution of males versus females in the younger age groups in China, most particularly, those under 30 years of age since the policy was implemented in 1979.  While the exact numbers are difficult to substantiate, China may have up to 32 million more young men than young women.  In developed nations, the ratio of male to female births ranges from 1.03 to 1.07.  Since the one child policy was adopted in China, the ratio of males versus females has steadily increased from 1.06 in 1979 to 1.17 in 2001 with local rural ratios up to 1.3.  While it is often believed that rural ratios are higher than those found in urban areas, according to Kang and Wang (2003), the sex ratio for urban areas is 1.13 for the first birth and 1.3 for the second birth with the difference indicating that it is quite possible that gender specific abortions are taking place.  According to the Population Reference Bureau's study "Shortage of Girls in China", the country's 2000 census showed that there are 20 percent more boys than girls aged birth to 4 years of age and seven provinces with a total population of 387 million people have between 28 and 36 percent more boys than girls between birth and 4 years of age.  In rural areas, couples are generally allowed to have a second child if the first is female.  While gender specific abortions are illegal, other actions including possible infanticide, adoptions and abandonments are more likely where the second child is female.  Here is a chart showing the ratio of males to females based on birth order:

Here is a map showing the sex ratio of males to 100 females from the paper "China's excess males, sex selective abortion and one child policy..." taken from the intercensus survey of 1 percent of China's households completed in 2005:

Quite naturally, the United States Department of State has a stand on the issue.  Here is what the Department of State Country Report on Human Rights Practices 2009 for China has to say about the issue:

"Female babies suffered from a higher mortality rate than male babies, contrary to the worldwide norm. State media reported that infant mortality rates in rural areas were 27 percent higher for girls than boys and that neglect was one factor in their lower survival rate.

Laws and regulations forbid the termination of pregnancies based on the sex of the fetus, but because of the intersection of birth limitations with the traditional preference for male children, particularly in rural areas, many families used ultrasound technology to identify female fetuses and terminate these pregnancies. National Population and Family-planning Commission regulations ban nonmedically necessary determinations of the sex of the fetus and sex-selective abortions, but some experts believed that the penalties for violating the regulations were not severe enough to deter unlawful behavior. According to government estimates released in February 2008, the male-female sex ratio at birth was 120 to 100 at the end of 2007 (compared with norms elsewhere of between 103 and 107 to 100)."

Again, according to the United States Department of State Country Report on Human Rights, here are the consequences for those who choose to ignore the one child policy:

"The law requires each person in a couple that has an unapproved child to pay a "social compensation fee," which can reach 10 times a person's annual disposable income. The law grants preferential treatment to couples who abide by the birth limits.

Social compensation fees were set and assessed at the local level. The law requires family-planning officials to obtain court approval before taking "forcible" action, such as detaining family members or confiscating and destroying property of families who refuse to pay social compensation fees. However, in practice this requirement was not always followed, and national authorities remained ineffective at reducing abuses by local officials.

The population control policy relied on education, propaganda, and economic incentives, as well as on more-coercive measures. Those who violated the child limit policy by having an unapproved child or helping another do so faced disciplinary measures such as social compensation fees, job loss or demotion, loss of promotion opportunity, expulsion from the party (membership is an unofficial requirement for certain jobs), and other administrative punishments, including in some cases the destruction of private property.

.... Hunan Province required individuals conceiving children out of wedlock to pay 6 to 8 percent of their income from the previous year in addition to the standard social compensation fee. The law states that family-planning bureaus will conduct pregnancy tests on married women and provide them with unspecified "follow-up" services. Some provinces fined women who did not undergo periodic pregnancy tests. For example, in Hebei Province fines ranged from RMB 200 to RMB 500 (approximately $30 to $70), and in Henan Province fines ranged from RMB 50 to RMB 500 ($7 to $70)."

The gender imbalance makes it very difficult for many young men to find women to marry when they reach the age where marriage is allowed.  This shortage of marriageable women has led to an increase in human trafficking; women from poorer rural areas are often the victims as well as cross-border victims from nearby countries, most often North Korea, Vietnam, Burma, Laos and Mongolia.  Here is a description of the issue from the United States Department of State Country Report on Human Rights:

"Some experts and NGOs suggested that trafficking of persons was fueled by economic disparity and the effects of population-planning policies and that a shortage of marriageable women increased the demand for abducted women, especially in rural areas. The serious imbalance in the male-female ratio at birth, the tendency for women to leave rural areas to seek employment, and the cost of traditional betrothal gifts all made purchasing a wife attractive to some poor rural men. Some men recruited women from poorer regions, while others sought help from criminal gangs. UN research indicated most women trafficked internally were taken from areas with a very low GDP to areas with a very high GDP. Once in their new "families," these women were "married" and sometimes became victims of forced labor or rape. Some joined their new communities, others struggled and were punished, and a few escaped. Some former trafficking victims became traffickers themselves, lured by the prospect of financial gain."

Most cross-border trafficked women and girls came from Vietnam, Burma, North Korea, Mongolia, and Russia. Others came from Laos and Ukraine. All were trafficked into the country for sexual exploitation, forced marriage, and indentured servitude in domestic service or businesses.  Many North Korean women and girls were trafficked into the country to work in the sex industry and for forced marriages and other purposes, including forced labor."

Here is a closer look at human trafficking in China from the viewpoint of the United States Department of State in their 2013 annual report on the subject.  The Chinese government has been clamping down on human trafficking in recent years and has stated that police have cracked down on 10,000 alleged human trafficking organized crime groups and placed over 80,000 alleged suspects in criminal detention.  That said, State suggests that China's efforts to protect trafficked victims remained inadequate since only five out of 1400 shelters in the country were dedicated to caring for victims of human trafficking.  As well, it is unknown how many victims were actually helped since the government does not report this statistic.  

As I stated at the beginning of this posting, the best laid plans can have unintended consequences.  In the case of the one child policy, these consequences are rapidly becoming apparent and, because China is the world's factory, the consequences of their actions will spread throughout the world's economy and will ultimately impact all of us.