(Mar. 15, 2010) According to my research, Canada is the only country that experienced any growth in goods producing jobs between 1990 and 2007. In fact, Canada is the only country in the entire developed world that in 2007 had more goods-producing jobs than were in place in 1990.

While Canada has certainly lost goods-producing jobs since 2007—as a result of the global recession—our overall goods-producing job losses were relatively small, compared to other countries. Still, immediately post-recession, Canada’s goods-producing jobs count was still substantially above 1990 levels, while every other developed OECD nation is currently looking at a goods-producing jobs count well below 1990 levels.

“Goods-producing” includes: agriculture, forestry, fishing, mining, quarrying, manufacturing, enegy and water utilities and construction.

100% of the “green jobs growth” in Europe since 1990 has been jobs in the taxpayer and health care premium-financed sectors.

This is a cautionary tale.

While among the nations examined, only Germany’s goods-producing sectors carry fewer public service wages-earners than Canada’s (even the US number is worse than Canada’s, because of the US health care situation), and while Canada is the only western nation that has realized increases in goods producing employment since 1990, Canada has also experienced the second highest rate of growth in public sector/taxpayer-financed services among the sampled nations.

Clearly, Canada’s trend to public sector/service job growth is no more sustainable than any other country’s. The good news is that we have not yet devastated our goods producing sectors the way the other nations have.

The key question here is: how many public sector jobs can governments ask goods-producing taxpayers to support before the whole market crashes?

I do not know the answer to this question. But, clearly, the trend is not sustainable.

I have also produced a little graph that shows that except for the US and Denmark, net foreign direct investment (private capital) has fled the European government-centric, jobs-growing nations for Canada, in a big way, over the last two decades. The message here, is that it would be unwise for Canada to implement the very European tax and energy policies that have resulted in capital flight from Europe to Canada.

Key Problems With the Economic Modelling That Favours Carbon Taxes

A tax shift in which income tax cuts are financed with carbon tax revenues, by definition, results in an increase in government spending as a % of GDP.

When any specific government debt-to-revenue or debt-to-GDP ratio appears to be constant over time, but government spending/wages and services are increasing as a % of GDP, the economy is actually becoming weaker. Focusing on GDP and debt as a % of GDP, without considering shifts in the mix of taxpayer-funded and private investment-supported economic activity, is a large mistake. But that mistake characterizes most of the economic analysis that results in recommendations that our governments introduce carbon taxes and recycle the revenues to cut income taxes.

Also, the economic model (MKJA’s CIMs model) favoured by the Canadian environmental movement and the National Round Table hold that there is no negative impact when taxes and social transfers are increased relative to overall economic activity. In those economic models, there would be no negative impact on GDP if, tomorrow afternoon, our leaders decided to expropriate privately-held assets and convert Canada into an entirely government-controlled and owned economy.

Of course, the CIMs and other models fail to anticipate that private investment will decline as the economy becomes more centrally-managed by government.

Note that the Economic Modelling Equates “Cap and Trade” to Carbon Taxes

As you know, “cap and trade” is simply a fancy name for quota-based supply management.

All of the leading and most cited Canadian economic models equate cap and trade to carbon taxes.  For any given market price for quota, the models anticipate that the market will react to a “cap and trade” regime in exactly the same way that it will react to consumption taxes of equivalent price. The models fail to recognize that a quota-based supply management regime is far more than/different from a production or consumption tax.

Think of Canada’a quota governed dairy markets, or most municipal taxi markets. Every quota regime, no matter how administered (and even if/when quota is 100% auctioned) delivers unprecedented market power to market incumbents with large pre-quota regime market share and or large cash positions, usually at the expense of innovators and new market entrants. None of the Canadian economic models anticipate the market distortions and inefficiencies that we all know can be attributed to quota regimes, in their analysis of the carbon quota regime proposal.

Aldyen Donnelly, March 15, 2010