Colin Fraser

(If you don’t use reddit, the first sentence of this will be gibberish to you). There is a new subreddit called called /r/explainlikeimfive, which is great. The idea is that people pose questions that they feel like they ought to know the answer to but don’t, and then responders attempt to answer the question like they are talking to a five year old. Today someone asked this:

As best you can, please explain the scientific case for and against the notion there is a link between vaccines and autism. Also the cultural, political, and corporate aspect of this issue if you would.

I responded, and I feel like anyone who reads my blog ought to know a little about this too, so without further ado, my response:

Once upon a time, a fellow named Dr. Andrew Wakefield wanted to be published in a prestigious medical journal called the Lancet. He also wanted to make some money. So he handpicked twelve kids, some of whose parents’ lawyers were paying him secretly to conduct the “study” in order to gather evidence that would make it easier to sue vaccination companies, and pretended that they had developed signs of autism within 14 days of having had the vaccination, even though he had no evidence to support that and not all of the parents even claimed that. He then subjected these twelve young children and babies to a series of invasive and potentially harmful tests like colonoscopies (that’s where you shove a long camera through the anus and into the lower intestine) and lumbar punctures (that’s where you jam a needle into the spine), despite his not having gotten permission from the people in charge of whether you’re allowed to hurt babies for science. When the people who are in charge of whether you’re allowed to hurt babies for science found out, they were very mad, especially since the tests ended up not proving anything anyway, but I’m getting ahead of myself.

(Pictured above: common pond scum)

His study was published in the Lancet, and he got paid his money. However, even though his study was mostly fake, it still didn’t conclusively show a link between autism and the lifesaving MMR vaccination. That’s because it’s not that easy to show that one thing causes another thing when you’re writing a paper. It’s easy to show that things happen at the same time (especially if you lie, which he did), but it’s not easy to show that one of them causes the other (even if you lie, which he did). So after the paper was published, he went on record as saying that he was sure that the MMR vaccination caused autism, even though that claim wasn’t even supported by his fake paper. He developed a large following of parents in the UK (where he is from) and around the world, who noticed that when their children were babies, they were vaccinated and they also developed the signs of autism, and decided that the autism must have been caused by the vaccination like Mr. Wakefield said. He exploited these sad, desperate parents in order to gain more fame and notoriety. With his fame, he planned to develop his own line of autism-safe vaccinations, despite still not having actual evidence that the existing vaccinations were not autism-safe.

Then, a reporter named Brian Deer started to do some research on Wakefield’s research. He started by visiting one of the parents and asking her about her child’s case. She revealed to him that she thought her child developed signs of autism around six months after the vaccination—but Wakefield’s study had said that it was only two weeks. Wakefield went on to do some other research and found out some other things, like that some of the children in the study had never even been diagnosed with autism, and some of them had developed signs of autism and bowel problems (his other claim was that the vaccinations caused bowel problems) before receiving the vaccination. Every single one of the children had a medical record that showed a different story from what was published in the study.

When the people who are in charge of whether you’re allowed to hurt babies for science found out about this, they were really mad. Wakefield had hurt developmentally disabled babies and children for no reason, and had also hurt countless other babies whose parents are now scared to let them be vaccinated on account of a pretend link to autism. They told him he’s not allowed to be a doctor anymore, so now he’s just Mr. Andrew Wakefield.

Everyone in the world should hate Mr. Andrew Wakefield, but some people still don’t. Some people, who don’t really know very much about how to read scientific papers because they are hard to read, are still scared that vaccinations cause autism, and they think he might have been right. Some of them are famous, like Jenny McCarthy (who was previously most famous for having naked pictures of her appear in a magazine) and Jim Carrey (who was previously most famous for pretending to talk out of his butt). This is unfortunate, because a lot of people are willing to believe people based on how famous they are, rather than based on whether they are doctors or even know anything.

There really isn’t much more science out there than this fake article that this liar published to make money, but a lot of people are still scared because both vaccinations and autism are mysterious things, and autism is terrifying to a parent.

Perhaps the most devastating problem with subjective [survey] questions, however, is the possibility that attitudes may not “exist” in a coherent form. A first indication of such problems is that measured attitudes are quite unstable over time. For example, in two surveys spaced a few months apart, the same subjects were asked about their views on government spending. Amazingly, 55% of the subjects reported different answers. Such low correlations at high frequencies are quite representative.

Part of the problem comes from respondents’ reluctance to admit lack of an attitude. Simply because the surveyor is asking the question, respondents believe that they should have an opinion about it. For example, researchers have shown that large minorities would respond to questions about obscure or even fictitious issues, such as providing opinions on countries that don’t exist.

This is exactly why “surveys show that 90% of people support idea x” is the type of statement that yields exactly zero real information, should be discarded, and is in fact, in my opinion, harmful. People don’t have any idea what they do and do not support.

Via Overcoming Bias

A table alphabeticall conteyning and teaching the true writing, and vnderstanding of hard vsuall English wordes, borrowed from the Hebrew, Greeke, Latine, or French, &c. With the interpretation thereof by plaine English words, gathered for the benefit & helpe of ladies, gentlewomen, or any other vnskilfull persons. Whereby they may the more easilie and better vnderstand many hard English wordes, vvhich they shall heare or read in scriptures, sermons, or elswhere, and also be made able to vse the same aptly themselues.

That’s 383 characters too long to be a tweet (also, it’s sexist). The dictionary was 120 pages long and listed 2,543 words. Here is the Wikipedia article

I learned this reading The Information: A History, a Theory, a Flood by James Gleck. I also learned about talking drums reading this book. I recommend it, if you like reading interesting things.

PS. Notice that, despite the apparent intent that Cawdrey (the guy who wrote the dictionary) had to establish a standardized English orthography, he spells the word “words” two different ways in the title. They didn’t care so much about standardized spelling when writing was still pretty new.

This’ll be a medium-length post by my recent standards. If you don’t feel like reading the whole thing, here’s your TL;DR: if you want to vote for the more progressive option, vote no to extinguishing the HST. If you want to learn more, read on.

One of the main criticisms that I have received for supporting the HST is that in doing so I am supporting a regressive tax. In discussing this with people, I’ve realized that there are varying levels of understanding of what exactly it means for a tax to be “progressive” or “regressive”, whether or not the HST itself is regressive, and whether that is a good or a bad thing. So the purpose of this blog post will be to explain each of the aforementioned items one by one.

What is a regressive tax?

There are a lot of schools of thought on what makes a tax fair. The main reason for this is that the whole idea of taxing a person—that is, of confiscating their earned property without consent—is difficult to justify philosophically in the first place. (I’m not saying no taxes can be justified. I’m just saying that it’s harder than you think, if you’ve never thought about it before.) One school of thought says that people should be taxed according to their ability to pay. The idea is that people who can afford more should pay more, and people who can afford less should pay less. If we are evaluating the fairness of a tax system based on ability to pay (and note: ability to pay is not the only framework we can use to evaluate the equity of a tax system), we look at the amount that a poor person pays as a fraction of their income compared to a rich person.

So, you and me are the only people in the economy. You’re rich. You make $1,000 a year. I’m poor. I make $100 a year. The government needs to collect $200 in taxes. There’s a few different ways they could do this. They could just charge a flat tax of $100 on each of us. This tax would be highly regressive, because I, a poor person, would be paying 100% of my income, while you, a rich person, would only be paying 10% of your income. If the poor guy pays a larger fraction of his income than the rich guy, the tax is regressive.

Another option would be to have a proportional tax. That would entail me paying $18.18 in taxes, and you paying $181.82 in taxes. That way, I would be paying 18.18% of my income, and you would be paying 18.18% of your income. If the rich guy and the poor guy pay the same fraction of their income, then the tax is progressive.

A third option would be to decide that since $100 is barely enough to live, and $1000 is enough to live as comfortably as you want, I should pay a smaller fraction of my income than you do. So, maybe, you pay $199 and I only pay $1. In that scenario, I would be paying 1% of my income, and you would be paying 19.9% of yours. If the rich guy pays a larger fraction of his income than the poor guy, the tax is progressive.

Note that each of these taxes is “fair” in its own way. With the regressive tax, you and I pay equal dollar amounts. With the proportional tax, we pay equal fractions of our income. The hardest one to make a rigorous “fairness” argument for, actually, is the progressive tax*. Nonetheless, moral intuition tells us that progressive taxation is good, and I am a fan of moral intuition (although you might be surprised at some of the people who are in favor of certain types of regressive taxation).

So which is the HST?

Some very smart pro-HST supporters have argued that the HST is a proportional tax. It makes sense. It’s a 12% tax no matter if you’re rich or poor, so it seems like it should be a proportional tax. But it’s not quite right though. Consumption taxes—that is, taxes you pay at a store as opposed to taxes your employer takes off the top of your paycheque—are always inherently regressive. Why? Because rich people save (read: don’t spend) a greater portion of their income than poor people. So, going back to our example above, let’s say you save $100 of your $1000 salary. I don’t save anything, because I can barely afford groceries as it is. We add in a 10% consumption tax. Here’s what happens:

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So you pay a smaller portion of your income than I do. And that is, by definition, regressive. So yes, it’s true, the secret is out. The HST is regressive. How regressive? I have no idea. It depends on how much money rich people typically save. If they save lots, it’s more regressive than if they only save a little bit. In fact, if they don’t save anything at all, then it is proportional and not regressive, but it seems likely that rich people are saving at least a little bit of their money. (If they aren’t then how did they become rich?)

And why should I be okay with this?

Well, we just established that the HST is regressive by virtue of the fact that it is a consumption tax, and consumption taxes are inherently regressive. Well guess what: PST IS ALSO A CONSUMPTION TAX, AND SO IT IS ALSO REGRESSIVE FOR THE EXACT SAME REASON THAT HST IS! So all this business about the HST being a big move towards regressive taxation is a big load of baloney. We already had a regressive tax. If we go back to the PST/GST, we are going back to a regressive tax. If we keep the HST, we keep a regressive tax. Saying we should go back to PST because HST is regressive is like saying we should give away our German Shepherd and get a Golden Retriever because our apartment doesn’t allow dogs.

Furthermore, the HST is less regressive than the PST was! It has been shown over and over again that the very poorest in BC will pay less with HST than they did with PST. Meanwhile, the rich pay a whole lot more with HST than they did with PST, being that the tax has increase on luxury items such as estheticians, personal training, cars, and new homes valued at over $525,000.

This is the exact kind of stuff that makes me wonder what exactly Bill Vander Zalm’s motives are, when he lists the regressivity of HST as a reason to vote against it. If he cared about making sure we have the least regressive tax, he would be in favor of HST, since it is the least regressive of the two. If he were honest (he’s not, but I’ve mentioned that before), he would admit that regressivity isn’t a reason to vote against the HST. He must know this stuff. I mean, it would be very surprising if he hadn’t at least had a cursory glance at the literature on this stuff, and a cursory glance is all you really need to see that the HST is less regressive than the PST. But he trudges on pretending to be a crusader for the poor, spreading complete and utter misinformation.

So, anyway, if you are a person who likes progressive taxation, and a I know a lot of people do, the HST is a better choice in that regard. Yes, it is a regressive tax, but it is less regressive, and thus more progressive, than the PST. And if people in this debate were honest, everyone would know that by now.

*The most rigorous way to do it, in my opinion, is to appeal to the idea that above a certain level of income there is diminishing marginal utility to income—in other words, each additional dollar that you earn is worth less to you than the previous dollar. If you could show that that were true, then you could make the case that your progressive taxation system taxes income at equal levels of marginal utility. This is all very hard to do. The easiest and probably best way to do it is to just appeal to moral intuition and say thing like “the wealthy should pay their fair share”.

The paper is here. It’s by SFU professor Jonathan R. Kesselman. It’s 34 pages, and it’s a real page-turner if you’re a masochist. Luckily I am, so I read the whole thing, and am happy to summarize it below. (Seriously though, it’s a relatively easy read for this type of paper, and I encourage you to click the link and read it yourself.)

Kesselman enlightens on a number of topics related to the consumer impact of HST. First, he goes over some reasons that you can’t trust the man-on-the-street opinion on HST. Why not? Because the man-on-the-street is empirically shown to not know what he’s talking about.

The HST Information Office established by the BC government to better inform the public in advance of the HST referendum commissioned a survey in November 2010 to assess the views and knowledge of residents (HST Information Office 2010a). Results of the survey revealed striking misconceptions about what items had become newly taxable by BC with the HST. It asked respondents whether they believed tax on various goods and services had increased with the HST: basic groceries (27 percent responded “significantly,” 36 percent “somewhat”; false except for snack foods); furniture and appliances (23 percent “significantly,” 25 percent “somewhat”; false); haircuts (27 percent “significantly,” 39 percent “somewhat”; true); re-sale homes (20 percent “significantly,” 16 percent “somewhat”; false except for commissions on the sale); new homes less than $525,000 (23 percent “significantly,” 16 percent “somewhat”; false); restaurant meals (“significantly” 49 percent, “somewhat” 40 percent; true); electronics (“significantly” 22 percent, “somewhat” 26 percent; false); prescription drugs (“significantly” 13 percent, “somewhat” 21 percent; false); and gasoline (“significantly” 23 percent, “somewhat” 26 percent; false). (page 2)

The real meat of the paper begins later though. Starting on page 8, he begins to discuss evidence from the BC Consumer Price Index (CPI) compared to those of other provinces to try to assess whether the HST-induced savings to businesses are being passed on to consumers. By the way, if you don’t know, the CPI is a measure of the average price level. They take a “basket” of goods and services that they figure the average person buys regularly, and they track the price of that basket over time. Individual prices in the basket rise and fall and vary all over the place, but the CPI only goes up when the total price of the basket goes up, and vice versa. So anyway, as I’ve mentioned, businesses end up saving a fair bit of cash thanks to the HST. This paper, which cites Statistics Canada, estimates that it’s about $1.9 billion dollars a year that businesses will save on their input costs. Economic theory and historical evidence predict that those savings will be passed on to consumers, but skeptics abound.

Kesselman estimates that if businesses did not pass on the savings, BC’s consumer price index would rise by about 1.3%. TD Economics did a similar calculation and estimated that the CPI would go up by 1.5% if there was no pass-through of savings. So, he figures, if the CPI has indeed gone up by about 1.3%-1.5%, we can be pretty sure that businesses have not passed on any savings.

But, he finds, the CPI has risen by considerably less than that. Six months after the change, the HST had only accounted for a 0.6% rise in the price level. That is below even optimistic estimates of the pass-through effect—it seems that businesses truly are passing the savings on to consumers in a surprisingly big way. The way in which the CPI changed over the period of time following the shift is notable as well: the consumer price index went up by 1.0% in the month following the change to HST, and then gradually came down over the next several months. These numbers are controlled for nationwide changes in CPI, so we can be reasonably sure that we’re just looking at the effect of the HST itself. He tried a number of controls and got pretty much the same results each way.

Restaurant prices, he unsurprisingly finds, have gone up the most: 6.5%. However, several expenditure categories have fallen in price since the HST was introduced: rented accommodation, homeowners maintenance, clothing, and footwear. Each of these categories dropped in price during the five months following the change to HST, strongly suggesting that the decreases are a direct result of a pass-through effect.

Grocery bills—that is, the price of anything you can buy at a grocery store—have gone up by 0.1% since last July. This is strong evidence that there is significant pass-through on basic groceries that are zero-rated, since this number includes a number of items that should have gone up in price by 7% if there were no passthrough.

Crucially, the price of a new house has shown “almost no price change over this period, with the new 7 percent tax being offset by elimination of the 2 percent of RST embedded in materials, supplies, and equipment in construction plus the 5 percent BC rebate for new housing up to $525,000 and flat rebates of $26,250 for higher-valued homes” (Page 14).

More information on different expenditure categories is on the table on page 11.

Kesselman moves on to this issue of regressivity: that is, whether this tax is more harmful to the rich or to the poor. He rightly notes that, while the HST is a regressive tax, the real question is whether it is more or less regressive than the alternative, the PST. He finds (like I’ve been saying already) that poor people spend a higher portion of their income on things that don’t change in price, or even fall in price thanks to a decrease in embedded tax. Rich people, on the other hand, spend a lot more of their income on things with larger price increases. And, I’ll quote: “clearly for the lowest income households, the HST along with the credits has been a net gain” (Page 16). On this matter, he concludes that the HST is pretty obviously less regressive than the PST. In other words, while the HST itself is still technically regressive, the move from PST to HST is a progressive shift.

He finishes off with a few items of constructive criticism for the HST. Firstly, he suggests that we cut the HST one percentage point to 11%. Doing so, he predicts, would almost completely offset the 0.6% increase in CPI that we have seen thanks to the HST, and make it even less regressive. Now, this paper was written in February, so he might not have expected this to actually happen, but lo and behold, it did! He also suggests cutting the HST from used cars. I completely agree with him on this. Charging HST on used cars is entirely inconsistent with the whole idea of a value added tax, which should never apply to used goods. I have no idea why HST is being charged on used cars, and this is basically one of my only complaints about it. Finally, on page 21, there is a neat table of his estimates of the effect on different kinds of families form the HST combined with the offsetting tax credits, based on his CPI findings. Notably, he estimates that a single-parent family with two kids earning $20,000 is better off by $577 per year, and a two-parent family with two kids is better off by about $780 a year. The hardest hit, in his estimation, is a two-parent family earning $200,000 per year. They are worse off by about $810 year year.

So you wanted data? You got data.

This’ll be a little bit of a long post. I’ll preface by saying that (if you know me you probably know this) I am entirely in favor of keeping the HST. In other words I will be voting no to “extinguishing” (is it just me or is that a really weird way to use the word “extinguishing”? oh well…) the HST. Nonetheless, my main objective in writing this blog post is to be informative. A lot of people simply don’t understand the difference between the HST and the PST/GST system, and there is a lot of misinformation around. As a nerd first and an economics major second I have spent more time than probably is healthy researching this issue, so hopefully this will be of some value to you, even if at the end you decide that you would like to vote yes.

Read More →

A lot of people seem to be accusing me of being a supporter of so-called “trickle-down” economic theory for supporting the HST. Trickle-down theory never worked, the critic will argue, and you’re a fool for lending it any credence. And if the critic is a bit of a history buff, they’ll add: all that stuff was proven wrong during the Reagan administration, you dolt.

Alright, first thing’s first. As Wikipedia notes, no one supports anything called “trickle-down” economics. It’s a pejorative term invented by people of a particular political viewpoint to use as a condescending term for certain macroeconomic theories, usually the ideas of the Reagan administration. The term is generally used interchangeably with the term “Reaganomics”, another loaded term, but at least “Reaganomics” points to a particular set of policies. So let’s look at Reaganomics and see if the HST would qualify as something Reagan would have liked.

According to Wikipedia, the four pillars of Reagan’s economic policy were to:

• Reduce Growth of Government spending.
• Reduce Income Tax and Capital Gains Tax.
• Reduce Government regulation.
• Control the money supply to reduce inflation.

The last two don’t really have anything to do with tax policy, so I won’t talk about those, but let’s have a look at the first two, which are tax-related, and see if the HST qualifies as trickle-down theory

The first is to reduce growth of Government spending. The idea here is that Governments aren’t good at deciding what would be good stuff to spend money on, or at least they’re not as good at deciding as the private sector. So if Government keeps its nose out of spending money, the private sector has more room, so to speak, to invest and build and make stuff and innovate. If you want to understand this better, read the Wikipedia article on crowding out.

I would love it if government spending were reduced. I really would. I think all the schools and hospitals should be privatized and if you are sick but you’re poor, well, that’s evolution baby*. But that’s beside the point, isn’t it. HST has absolutely nothing to do with that. They’re working on trying to make it revenue neutral, so it really has no reason to impact government spending at all, and the initial change ended up bringing in more tax revenue than was originally forecasted. So HST is basically the opposite of the first pillar of Reagonomics. That’s one point against the idea that HST is a “trickle-down” theory.

The second pillar is that income tax and capital gains taxes should be lowered. Now, to expand a little, we’re mostly talking about the income tax of very rich people. And capital gains taxes are taxes on capital gains, which are basically things that only rich people deal with. So what we want to do here with this second pillar is lower income tax rates on the rich. The idea is that you only become rich by being productive, and if we tax you for being rich then you have no incentive to keep being productive. You, as a CEO or a hedge fund manager or whatever, are performing such an important task that we want to encourage you to do it as much as possible. And taxing you might encourage you to work less, depriving the plebs of your valuable service.

I would love it if marginal tax rates on the rich were cut. We need more hedge fund managers and CEOs and other important rich people, and we want to make their lives as easy as possible, or else they might flee to the Cayman islands or something*. But the HST is actually a tax increase on the rich. The more new houses and cars and massages and golf memberships you buy, the more you pay. It is a much larger tax increase to the rich in absolute terms than it is to the middle class, and in fact as I have mentioned in previous posts, the poor end up better off with HST than they were. So this is a tax cut to the poor and an increase on the rich. So again, the HST ends up being completely contrary to classical interpretations of what “trickle-down” theory means

Typically when people talk about “trickle-down” economics, they are either talking about one of the two things I’ve listed above, or they are talking about corporate tax cuts. So I think that the idea that HST is “trickle-down” economics comes from the fact that, as I explained yesterday, the HST will result in businesses paying less taxes. People equate this with a corporate tax cut, but this is not the same thing as what we usually mean by “corporate tax cuts”. “Corporate tax cuts” usually refers to a cut in the marginal tax rate of corporations. In other words, it’s a tax cut to corporations that make a lot of money. It’s basically this: “if you make 10 million dollars this year, we will give you a tax break”. Some people find this abhorrent, and it’s something that reasonable people can disagree about. But I cannot stress enough that HST has nothing to do with that! The HST isn’t just a tax break to the wealthiest corporations; it’s a fundamental restructuring of the way that we collect tax. It benefits businesses of all sizes, from single-person operations struggling to get by to hedge funds.

Believe it or not, it’s not very controversial among economists that actions that benefit all businesses are generally good for the economy. There is, however, much disagreement over whether things like tax cuts for the wealthiest corporations and their CEOs are good or bad. I think this is where the confusion comes from. There’s a little bit of equivocation going on; we are defining “business” two different ways and switching back and forth between the two. People have a strong knee-jerk hate reaction for tax cuts on big business and the rich. So, when they hear that HST will help businesses, they automatically think about a trickle-down, Reaganomics-style tax break for the wealthiest corporations and individuals, and decide that HST must be abhorrent. But HST helps every business pretty much proportionally as much as every other business, regardless of income. You don’t have to be a multinational corporation to benefit from reduced input costs and administrative work.

So, to sum up, anti-HST arguments based on a premise that “trickle-down economics never works” are fundamentally flawed. The HST doesn’t qualify as a member of the trickle-down economic policy club, because it’s a tax increase on the rich and has no effect on government spending.

*I don’t actually believe this

This paper offers a first look at actual experience by examining changes in consumer prices in Ontario since July 2010 that can reasonably be attributed to the effects of tax reform.

On the basis of the consumer price data, I find:

• The effect of harmonization was to raise consumer prices in Ontario by an estimated 0.9 percent in July 2010.
• By December, the effect of harmonization had fallen to an estimated 0.6 percent, as sellers increasingly adjusted prices to absorb some of the consumer tax increase. The gradual decline in price impact over time reflects how input tax credits are passed on to consumers by businesses, or how the new taxes are otherwise being absorbed by sellers. These estimates suggest that about two-thirds of new input tax credits are already reflected in lower consumer prices.
• Incorporating the compensating income tax changes also enacted by the Ontario government, the reform’s net effect at the end of 2010 was extremely small for the average family. Incorporating all the changes, the after-tax real cost of living is estimated to have risen $121, or 0.24 percent of household consumption, for the average family based on December prices.
• Most families of below-average income experienced a net gain as a result of the reform, as compensation through the income tax changes more than offset higher taxes on consumption expenditures. In other words, the net impact of the reform for most families by the end of 2010 was a gain or very small loss in after-tax real incomes. Since input tax credits are likely passed on as lower prices or higher wages only gradually, the long-term positive effect of the policy on the after tax real incomes of Ontario families is understated by this very short-run estimate of its impacts.

Read the whole paper here. Read my last post to see why all of these effects are exactly what you would expect to see happen.

Now you’re thinking about a pink zebra. Now you’re thinking about thinking about a pink zebra. Now you’re thinking about thinking about thinking about a pink zebra. If you’re good, you might now be thinking about thinking about thinking about thinking about a pink zebra. But that’s probably about as meta as you can go. Why? I don’t get why my brain won’t let me go infinitely meta about thinking about pink zebras.