Wednesday, September 20, 2017

The Canadian government attacks the values of its own citizens

I wrote this to an Ottawa area MP when I learned of an upcoming "consultation" phone call.

I am writing to you as a financial advisor who lived in Orleans for a number of years when I first built my business and who has many clients living in Orleans to this day.  I urge and implore you to push the government to stop all action towards implementing the published proposed tax increases as they could be the most damaging tax increases in our lifetime so far.

When I learned of the proposed changes, my jaw dropped and I felt very angry too.  As a financial advisor for the last 24 years I have gained a very good knowledge of many parts of the Canadian income tax system, particularly individual income tax, as I am a registered eFiler and prepare about 130 returns per year for my clients. Over the years I have done over 2,000 tax returns. In addition, a crucial part of financial advice is understanding how income tax reduces the value of investments made by clients, thus reducing the wealth of Canada forever, and helping clients understand and plan to keep their tax burden to a legal minimum through proper planning.

I think it is crucial for you to clearly understand what it means when a person earns income. It means he has created something of value that another person is willing to exchange his own values for. Money is simply the medium of exchange – the underlying value represent a piece of each person’s life, their energy, their intellect, their physical effort, their personal property, their values. In a country that truly protects the rights of individuals, productive ability is celebrated, not punished. Individuals with prodigious ability to create value must be free to do so and the value they create should not be attacked by their own government. If a man can build a business and create value of $200,000 more than the cost inputs, then this is only possible because the people he trades with agreed that he had created this value – that is to say they willingly traded their own values in exchange and only because they thought they were better off for having traded.  If a man can produce excess value of $2 million then he has created much more benefit to his fellow members of society than the man who created $200,000 of value. Should the man who creates greater value be punished for it? Should his productive ability be stifled? Should his ability to allocate capital that is used to create even more value be impaired? Is it moral for him to have a greater portion of his production stripped from him by force the harder he works? This is exactly the regressive tax system we have today.

For many years I taught a financial planning seminar series for adults through the Ottawa Catholic School Board and in the class focused on income tax I listed thirteen different examples of situations where the tax system claws back income, over and above the basic income tax, leading to sometimes severe punishment for earning more income. I used an example drawn from my real life experience doing a client tax return, where a single parent earning $30,000 faced a 70% effective tax and clawback rate. This is not the only example, the system is riddled with complicated buttons and levers pulled by a series of governments over time.  I’m sad to say this has only become worse since the last Federal election and the punishment for daring to produce more value for fellow citizens has risen.

Consider the possible things a business can do with its earnings. Remember that dollar are simply place-holders for actual economic values such as tools, equipment, buildings, vehicles, clothing and all the other goods and services produced by people to improve their lives. First, it can hold them in a bank account and in this case the cash then is available for the bank to lend to others who may need capital to pursue their own goals in life. Second, the business may spend it on maintaining operations or invest in growing its productive capacity and in this case it also produces value. It may pay salaries or dividends to owners of the business, enabling them to pursue their personal values and improve their lives. The business may hold retained earnings and invest in other businesses, either small private businesses or larger, more liquid and secure businesses; again in both cases serving to maintain and increase the production of human values. All the actions a business may take with its earnings are positive, unless the business is not run well enough to be competitive and profitable and thus closes.

This is economics 101, but it is not well understood by many people, including Canadian elected officials of the last century. When production is taxed, the whole chain of wealth creation in society is slowed down, retarded, held back. Don’t forget, wealth is simply the values chosen by people, values such as homes, cars, communications, schools, hospitals, scientific discoveries, etc. Forcibly taking greater amounts away from those who are better at producing values - no matter what is done with it, no matter how well intentioned the takers may say they are, no matter their justifications - can only impair human progress. Taking ever-higher percentages from people as their productive abilities increase is an even greater harm to the producers and to society. Below is a table from my class slides, showing that a dollar doubled ten times is worth $1,024 but when taxed at 46% is only worth $75. In one case, society has $1,024 of homes, schools, hospitals, etc. and in the other it has only $75 of these. Which society has the greater health of citizens, greater education, greater communications, safer houses and cars, more ability to care for the small fraction of truly incapable individuals?

Note that when I referred to helping clients pay a minimum of tax, “minimum” does not by any means mean low or nil, as many of my clients pay far more than a fair share of tax already. The fact is that the people who are the most productive already pay taxes at a rate far greater than their fair share. As the table below shows, just 10% of our population pays 41% of taxes, four times their fair share. Even worse, the most productive 1% of our people are already forced to pay, despite spending vast amounts on tax and legal and financial advice, 24 times their per capita share of taxes. Twenty four times! Each of them carries on their backs twenty four fellow citizens, weighing down their ability to produce values, to improve civilization, to advance human knowledge, to improve the lives of those they trade with, to innovate, to hire people to help them in their productive efforts. Just imagine the progress that would be unleashed if the greatest producers among us were truly freed to use all their abilities to their fullest!

Actually, you don’t need to imagine it. Until the recognition of individual rights along with proper governments to protect them in the late 1700’s, the natural state of humanity through all history was poverty. Suddenly, an explosion of knowledge and production raised the quality of human life by more in 200 years than in the thousands of years prior.  Countries that adopted the principles of freedom have uniformly flourished beyond the imagination of 18th century Kings. Canada was one of these.  Even today, wherever and to the degree the right to life, liberty and property are cherished in law and in the culture, progress and flourishing occur. To the degree a country violates these three great rights by the force of central controls, regulations and taxation, human life suffers – witness Venezuela in recent years. 

Alas, Canadians have forgotten the philosophical roots of the enlightenment and are unaware of the causes of the industrial revolution and the great advances they see around them. They are moving away from expanding freedom and towards, and even accelerating towards, collectivism, socialism, statism and fascism, which are all essentially the same. The current proposals to raise taxes on private corporations represent a significant slide towards Venezuela and misery and suffering. Notice how there has been NO discussion of the possibility that some people are being taxed too much and their burden should be lowered to create a more level playing field. The only discussion by the Government is to increase taxes on some people to a level paid by some other people - people the government thinks it can persuade to vote for them to continue punishing high producers. The tall flowers are being cut down again. The logical progression of this is to cut a level lower and lower until all are equal in their suffering and the Marxist ideal is achieved, a la Venezuela, where you cannot find a dog, cat or bird in the city because the people have killed them all for food – even zoo animals.

The consequences of implementing this tax proposal will not be unintended, but fully intended. The government has been told, warned, notified of the pending damage to society. The assumptions behind the proposal are severely flawed in both moral and economic terms, so to seek ideas in a “consultation” on how to minimize unintended consequences is to entirely and deliberately miss the point. The proposal represents a willful and wanton destruction of real, tangible and deeply moral values like homes, food, education and health so cherished by so many Canadians. Instead of attacking our most productive people, isn’t it time Canada started to encourage them to ever greater heights and encouraged all others to emulate their success and help them in building an even wealthier society? Our entrepreneurs, business people and high producers should be our greatest role models, not the object of scorn, derision, insults and attacks via the force of taxation. While there is so, so much more than could be said on this, I will close with a quote from one of the great thinkers in the field of human freedom and progress.

You cannot bring about prosperity by discouraging thrift.  You cannot help the wage earner by pulling down the wage payer.  You cannot help the poor by destroying the rich. - Abraham Lincoln

I look forward to your thoughtful response to my letter.

Wednesday, September 6, 2017

A Fossil Fuel Free Global Equity Fund? It's not right. It's not real.

In Canada, RBC funds has launched a mutual fund that uses an exclusion process to avoid companies involved in extracting, processing and transportation of fossil fuels.

They state this investment process leads to high conviction research driven portfolios and returns defined by stock-picking, not style, with a low correlation to peers.

I replied to the company's communication with the following message:

I think the concept behind the fund is incorrect, irrational, incoherent and immoral. The energy from fossil fuels has: 
a) powered the industrial revolution, 
b) advanced knowledge and society more in two hundred years than in all prior history, 
c) lifted billions of people from poverty, 
d) enabled the potential for a safe, healthy, long and productive life for all of humanity, 
e) eradicated almost all human deaths from the naturally dangerous climate, 
f) enabled us to wipe out the worst diseases of the past,
g) empowered women, minorities, former slaves and anyone with the mind and determination to do so to succeed beyond the wildest dreams of pre-industrial society,
h) much more.

To in any way promote the concept that fossil fuels, which presently provide 85% of all the power required to operate modern society, represent a meaningful threat to civilization instead of being the salvation of civilization is a monstrous distortion of reality and a disservice to all humanity. 

As a starting reference point, I have attached a fascinating article that studies the interaction between climate, human deaths and energy availability.

I note that every single holding in the fund relies utterly on fossil fuel energy to remain in existence. If fossil fuels were banned tomorrow, these companies would be instantly bankrupt and it would be the end of human civilization as we know it. With centuries of abundant, cheap, dense and portable fossil fuel energy available to us, not only is fossil fuel energy the fastest growing energy source in the world, but it is likely to remain by far the most important energy source for the next hundred years.

The company should be ashamed to be associated with the promotion of such a patently absurd concept as a fossil fuel free fund – it does not exist and should not exist.

Wednesday, June 7, 2017

Ontario Liberals are in love with the ideas of Karl Marx

Below is my quick response to the current Ontario Liberal campaign. They sent me an email asking me to support them in their efforts.  I declined and opted instead to send them a brief response.


Unfortunately you have chosen to launch initiatives that are straight out of the ideology of Karl Marx. Each of the initiatives listed below requires a massive violation of the rights of Canadian citizens the government is elected to protect. I believe Sir Wilfred Laurier would recoil in horror at what the meaning of being a Liberal has become. In his lifetime he lived just long enough to see the ideas of Karl Marx start bloody revolutions that in the end resulted in the deaths of tens of millions of people across the world. More die daily as a result of these same ideas in countries like Venezuela, while countries that are throwing away these ideas like China and India are advancing more rapidly that any country in history.  The Liberal party ideology needs to return to its roots and re-discover the ideas that made Canada a great country – individual rights and a government that protects them, not one that violates them.

While volumes have been written about all that is morally and economically wrong with these ideas, I will simply state here how they violate the rights of citizens, with government forcibly sacrificing a part of innocent lives to the whims, wishes and wants of other people. These actions are the exact opposite of fair.

The five initiatives are:
1. A $15 minimum wage - violates the right of employees and employers to negotiate terms of employment contract free of interference from parties who are not involved in the contract.

2. A basic income pilot - violates the rights of those who are working to create value and exchange it for wages by seizing some of their money and giving to others who are not or who have chosen not to work in support of their own lives.

3. Free pharmacare for youth and children - violates the rights of all those who work to support their own lives and those of their family, forcibly taking part of their hard work and giving it to those who did not earn it.

4. Free post-secondary education - violates the rights of all those people who work to pay for the education of themselves or their loved ones and all the rest of society's producers too, forcing them to pay for the education of strangers at the expense of their priorities in life. Such an action raises the expenses of education, stifles innovation and competition, and punishes those who work the hardest and whose work is the most productive.

5. Rent control - violates the rights of the people who have saved and invested their capital to provide rental accommodations for willing tenants. Such an action can only cause less rental properties to exist and to reduce the quality of such properties.

Wednesday, May 10, 2017

MP McGuinty's October 4 2016 statement in the House is replete with fundamental errors

On October 4, 2016 MPP for Ottawa South David McGuinty made a statement in the House of Commons that was so full of economic and scientific errors I felt it worthy of comment. To find his statement follow the link and then search for his name and go to the second occurrence of it.

1. The statement says the issue of climate change has nothing to do with ideology, yet the very essence of the topic is political control over people's decisions regarding energy and how they live their lives. If advocating for a massive interference in the governance of the nations of the world and the use of political force against all of humanity is not an ideology then I wonder what an ideology is?

2. The statement refers to 2,200 Nobel Peace Prize winners. Aside from the fact the Nobel Peace Prize has nothing to do with science but rather is ideological, only the IPCC organization was awarded the prize, not 2,200 scientists. The scientists referenced are those whose work is cited in support of the IPCC hypothesis of dangerous man-made climate change warranting a massive restriction of human rights, a hypothesis which is explicitly rejected by many of the scientists whose work is cited by the IPCC.  Dr. Frederick Seitz, in reference to the 1995 IPCC report: "I have never before witnessed a more disturbing corruption of the peer review process than the events that led to this IPCC report." Richard Lindzen, prof of meteorology at MIT, who at first participated in the IPCC process but then gave up: "There's little doubt that the IPCC process has become politicized to the point of uselessness." "They controlled who participated and who were the lead authors, especially of critical chapters."

3. The statement refers to IPCC scientists as if the IPCC was a scientific body, when in fact it is a political body composed of government representatives. A small number of scientists write chapters for the IPCC reports and an even smaller number review the full content.

4. The statement states that we have droughts and floods. While no doubt true, this statement is meaningless since it ignores all context. Are such weather events similar to the past or not? Do they represent a greater or lesser danger to mankind due to our use of fossil fuel energy? There is massive evidence that humanity is safer from nature and nature is safer from humanity due to our use of fossil fuels. Global death rates from extreme weather events declined by 98 percent since the 1920s, while economic damages corrected for population growth and wealth have not increased. Similarly, the incidence of droughts and famines in history is well documented and has declined massively since the advent of fossil fuel energy.

And what about the IPCC itself? In the 2013 IPCC Technical Summary, under Key Uncertainties, there are a few interesting statements.

"There is only medium to low confidence in the rate of change of tropospheric warming and its vertical structure."

"Based on model results there is limited confidence in the predictability of yearly to decadal averages of temperature both for the global average and for some geographical regions. Multi-model results for precipitation indicate a generally low predictability. Short-term climate projection is also limited by the uncertainty in projections of natural forcing."

"In Antarctica, available data are inadequate to assess the status of change of many characteristics of sea ice (e.g., thickness and volume)."

"There is low confidence in an observed global-scale trend in drought or dryness (lack of rainfall), due to lack of direct observations, methodological uncertainties and choice and geographical inconsistencies in the trends."

"There is low confidence that any reported long-term (centennial) changes in tropical cyclone characteristics are robust, after accounting for past changes in observing capabilities."

5. The statement references the Stern report, which is an economic paper referenced to give support for the use of massive political power over citizens' activities. Economic analysis of the Stern report, however, shows that Stern chose to use an extremely low, near-zero discount rate (0.1%) instead of a normal rate such as 3.5%, thus essentially Stern equates cost and value today with that in the distant future, when we know that economic growth has made us many times wealthier today than a hundred years ago and that this trend continues. To highlight this, at 3.5% growth we would have 31.2 times more wealth in 100 years whereas at 0.1% growth we will be 1.1 times wealthier. This is not a trivial difference and reveals the uselessness of the Stern report.

6. The statement references the carrying capacity of the planet and the need to live within it. The notion of a planetary carrying capacity is an anti-concept that uses non-essential characteristics to make us think there is a problem. An essential characteristic of man is that he creates resources from raw materials found in nature. The raw materials have always been there and they only become resources through the application of human reasoning to make them valuable for human life. The concept of value is a moral one and not a scientific one, thus no scientist can identify a threshold for the excess creation of value, since there is no measurable limit to value creation. The entire physical matter of the planet is a potential resource for humans, as are other planets and stars.

The challenge of human food supply provides one illustration of the limitless ability of humans to create value. Before the discovery, commercialization and industrialization of fossil fuel energy, the basic condition of humans was to be hungry, weak and sick. With fossil fuel energy we live longer, healthier lives with abundant food. Only in the shrinking portion of the world that has yet to adopt a greater degree of capitalism and industrialization is widespread hunger a problem. 150 years ago, 25 men working all day harvested and threshed a ton of grain. Today with a combine harvester it takes… six minutes. Farm productivity is up 2,500-fold by this measure. In just the last 25 years 2 billion people have emerged out of a condition of hunger and only a single country's population gets less than 2,000 calories per day: Zambia. In just 25 years (1990-2015) extreme poverty was reduced by 138,000 people per day, for a total of 1.25 billion.

How does a reasoning being, faced with the incredible improvements in the human condition due to the use of fossil fuel energy that provides 85% of world energy not see the wonders we have accomplished? Only an ideology that sees humanity as a blight upon the face of the planet - a philosophy that is fundamentally anti-human - can oppose human freedom to produce more energy and progress naturally towards the discovery of even more abundant, more concentrated and even more powerful energy sources we will no doubt find. To quote Amory Lovins, one of the leaders of just such an ideology that has become known as environmentalism, "Complex technology of any sort is an assault on human dignity. It would be little short of disastrous for us to discover a source of clean, cheap, abundant energy, because of what we might do with it." Oh, the horrors of clean, cheap, abundant energy!

Friday, April 21, 2017

Data used to promote "sustainable" mutual fund shows a big economic problem

The promotional piece for a mutual fund based on “sustainability” shows the graphic in Figure 1 below. I thought it would be interesting to parse this claim a bit to see what I could learn.

Figure 1

I note that this figure makes a claim about the number of jobs and not about economic reasoning or “sustainability”, whatever that actually means.  Since the subject of the day is investment, clearly economic reasoning should play the crucial role in assessing the merits of any claims made about the mutual fund’s mandate.

What might an analysis of the data for jobs and energy use tell us about the productivity of investments made in solar and wind energy projects when compared to fossil fuel energy production? How would workers in the wind and solar sector compare to the output of people working in coal, oil and gas energy production?  Given that wind and solar are intermittent, dilute and non-portable energy sources that have not been adopted by producers and consumers until recent huge taxpayer subsidies, one would suspect the traditional energy worker to be more productive than the newer ones in wind and solar, but by how much?  Would there be a small gap in favour of fossil fuel energy workers? Would the wind and solar workers be able to take advantage of the “sustainability” and “renewability” of wind and solar to leverage these innovation in energy production and perhaps be even more productive than the old-fashioned workers toiling in “dirty” oil, gas and coal companies?  

To determine this, we need to know what percentage of energy is produced by these different sources, then combine this with the number of workers in each energy sector. Every year a report titled “BP Statistical Review of World Energy” is published and provides great depth of information on trends in energy consumption by geographical distribution and by energy type. The report lumps wind and solar together with other alternative energies under the category of “Renewables” energy, so the data will somewhat overstate the true amount of wind and solar energy, but since other renewables such as biofuels are much smaller, this is not very important for our discussion.  Figure 2 shows the world consumption of energy. I note that the thin but growing upper orange slice is the renewable energy category and that it only represents 2.8% of global energy production.

Figure 2. World energy consumption in 2015, BP Statistical Review of World Energy 2016, p.42

However, the United States is far more advanced technologically than most countries, and one would expect that after a few decades of massive taxpayer subsidization of wind and solar that it would be a larger percentage of energy than for the world, and so it is. In fact, in the United States renewables account for 3.1% of total energy consumption, about one tenth more than for the world average. Not too impressive an accomplishment, as measured by promoters of renewable energy, is it?

Now to the heart of the matter - the integration of jobs data (which I will refer to as workers instead of jobs because I find it to be a more human term and it focuses our attention on the essential characteristic of work done instead of position held) with energy production data (which must be equal to energy consumption as shown in the research source). So, which of the following are you betting on?
  1. Fossil fuel workers are somewhat more productive than wind and solar workers.
  2. Workers in both categories are about equally productive.
  3. Wind and solar workers are somewhat more productive than fossil fuel workers.
  4. None of the above

Figure 3 combines the energy data from the 2016 edition of the BP statistical review of world energy with jobs data from the U.S. Energy and employment report of January 2017.  It turns out that in 2016 fully 86.0% of all U.S. energy came from fossil fuel sources, while as previously stated only 3.1% came from all renewables, including wind and solar. Given the number of workers in each sector, it takes 95.4 fossil fuel energy workers per million tonnes of oil equivalent energy whereas it takes 6,632.4 workers in renewables to produce the same amount of energy.

Figure 3. Energy production per worker in the United States in 2016

In other words, the average fossil fuel worker produces 69.5 times more energy than one in the renewable energy sector and the multiple choice answer is d) None of the above.  When advocates for renewable energy are promoting investment because it creates jobs, they really, really mean it.  A company that produces renewable energy needs to hire about seventy workers for every one worker needed by a fossil fuel company, but is this a virtue?  Does this mean the renewable company is more deserving of receiving an investment?

If the key criterion for making an investment is the number of jobs created then the motivation is to make the worker as unproductive, as inefficient, as regressive as possible.  In the fossil fuel business this would mean giving up trucks in favour of wheelbarrows, sacrificing excavating machines in favour of pick-axes, eliminating tanker ships in favour of wooden barrels. Sure, many more jobs would be created, but the cost of energy would skyrocket back to the level it was before industrialization and the entire world, not just the non-industrialized countries, would be back in an era of energy poverty. In fact the world would be in total poverty since it is energy that enables production of all other good than support our civilization.

The problem is that advocates of renewable energy use the wrong standard of value. They use standards like “nature as untouched by man” or “climate stability” or “bio-diversity.” By their standards, value is detached from human lives and thus actually loses all meaning, since without humans to value it there is, by definition, no reasoning being to assign value by choosing from the alternatives.

When human flourishing is the standard of value then decisions are focused on what promotes human well-being, human life and human happiness. By adopting a standard of value that is in keeping with the ideas of the best enlightenment thinkers, and more recently as elaborated by philosopher Alex Epstein, author of “The Moral Case For Fossil Fuels,” humanity can accelerate the pace of progress and continue to make our environment safer, cleaner and more enjoyable for future generations.