Welcome to our latest collection of interesting and enlightening insights into the world of economics:
Cost of Canadian government waste? Try $197-billion
The Fraser Institute, a right-leaning policy think tank based in Vancouver, published a study Thursday containing some eye-popping estimates of just how much money the federal government has wasted (their word, not mine) through failed and mismanaged programs over the past 25 years. The figure they came up with? Between $158-billion and $197-billion. (At the upper figure, that’s $5,600 for every man, woman and child in the country. I’ll take my reimbursement in nickels, please.)
The study’s authors derived the estimates from reports by the Auditor General of Canada over that time, in which specific programs and projects were identified as having failed to meet their stated objectives. The study identified 614 instances of government “failure,” including such things as “cost overruns, unnecessary spending, inefficiencies [and] inaccurate reporting of financial information,” the Fraser Institute said.
Indeed, the costs of failed and mismanaged programs could be even higher than that. The Fraser Institute noted that there were 235 additional “failures” that the Auditor General identified but didn’t provide sufficient financial information to determine the cost, and many other programs and projects that the Auditor-General didn’t review at all.
Canada’s construction boom: Enough already
The IMF’s new working paper on the boom and bust in European construction doesn’t have a lot to do with Canada, but its figures on construction’s contribution to gross domestic product (on page 8 of the report) speak volumes about just how overstretched Canada’s construction boom has become. The chart shows that construction’s contribution to Canadian GDP, which was already the highest in the developed world in 2007, had actually edged higher by 2011, at as much as triple that of most other developed economies. (A glance at Statistics Canada data suggest construction’s contribution to GDP hasn’t retreated appreciably since then.)
As the report points out, countries tend to eventually return to adjust toward their historical norm after a boom – indeed, they often overshoot and move below the norm for a while. If that goes for Canada, too, construction in this country remains overdue for a major, GDP-sapping correction.
Energy subsidies: Another form of income inequality
A World Bank blog written by Augusto Lopez-Claros, the bank’s director of Global Indicators and Analysis, makes the argument that government energy subsidies are a massive global form of income inequality. That’s because the subsidies, which the IMF estimates total $1.9-trillion (U.S.) annually, keep fuel prices down for car owners – who are typically toward the wealthy end of the global wealth spectrum.
“We have close to 800 million illiterates in the world, 530 million of them women; a large segment of the world’s population has thus limited access to the most essential tools to open the road to prosperity: knowledge and broad access to information,” he wrote. “But we spend close to $2-trillion annually subsidizing the driving habits of the global middle classes; a full 61 per cent of the benefits of gasoline subsidies go to the richest segment of the population, making these among the most regressive policies on the planet.”
Fuel subsidies remain rampant particularly in the developing world, though many developed countries, including Canada, still subsidize their fossil-fuel industries, too. The G20 countries, including Canada, pledged in 2009 to reduce their subsidies; a 2012 federal government paper identified almost $700-million a year in direct and indirect subsidies to fossil fuel producers over the previous five years.
So that’s why they make us all sit inside milk cartons here
A little behavioural economics to brighten your day (unless, of course, your accountant, CEO or political leader has a La-Z-Boy in his/her football-field-sized office). The latest issue of the Harvard Business Review talks with Massachusetts Institute of Technology professor Andy Yap, whose research suggests that people in bigger chairs and work spaces are more likely to be cheaters. His experiments found that subjects in these chairs and spaces, which encourage “expansive postures,” were more likely to pocket an overpayment for participation in the experiment rather than return it, to cheat on a test, and to break the rules in a driving simulation game. He also conducted a field experiment in which he found that people who parked their cars illegally tended to have their driving seats further reclined.