The Big Move Tax Grab

One of the first rules of politics is to try to minimize or at least obfuscate unpopular events or decisions.

Today, an agency of the Ontario government - Metrolinx - came out with their bag of "revenue tools" - taxes by any other name, to pay for a massive 25 year plan that will cost $50 Billion (at least).

So this could become one of the largest single tax grabs in Ontario, since Dalton McGuinty said he would not raise taxes, but instead created the Health Premium, a new "tax" in the 2004 budget.

What I find interesting and funny is this, in the week or so before the Metrolinx revenue tools announcement, the two most consistent opponents of these revenue tools - the Ford brothers Rob and Doug - were attacked by two of the largest newspapers in the country, and accused of various drug offences: smoking crack and pushing dope. Not only did those allegations create local headlines with daily ramifications, but Toronto politics became a joke on North American late night TV shows. So, I'll ask, is there a connection? Is this a smoke screen (pun intended) for Metrolinx?    

Metrolinx is supposed to alleviate the gridlock in the Greater Toronto - Hamilton Region. The average commute time in the area is now 82 minutes. When (and if) the plan gets done, that commute time will be 77 minutes - 5 minutes saved! Of course, the CEO of Metrolinx says that if it isn't done, his crystal ball says the average commute will be 109 minutes. Could it possibly be 108 or maybe 100 minutes? How can this guy predict what things will be like in 2038? Maybe we'll get those flying cars I've been waiting for. But with even more taxes piled up onto poor Ontario, who will be able to afford a flying car?

Political Scandals

The mayor of my hometown, the largest city in Canada, is alleged to be in a video where he is smoking a crack pipe. Neither the video (which only a very few have witnessed) nor the owners of the video can now be found. The mayor's brother, an elected councilman of that city, is accused of pushing dope in the 1980's, but none of the ten or so people who were accusers would step forward and make the charge.

Several Senators in Ottawa (not the hockey players) have been accused of being less than forthright (lying) about their principal residence and as a result they received large sums of public money, which they now must repay. Two of them were once prominent respected journalists and the scandal has reached into the office of the Prime Minister of Canada.

Former Ontario Liberal Premier Dalton McGuinty accepts the blame for moving two Gas Power Stations in order to save two Liberal political seats in the 2011 election. He didn’t know it would cost in excess of $600 million – which the province had to borrow. He resigned and closed the Ontario Legislature for four months to let things cool off.

If you “Google” the phrase “political scandal,” you would get about 257 million results – even more than the phrase “political corruption.”

Political scandals seem to be what politics is about. Maybe that had something to do with the fact that less than half the eligible voters of Ontario bothered to vote in the 2011 Election.

Apple Computer has been accused of dodging taxes for years, another type of scandal.

William Watson, in a column in the Financial Post has a great suggestion on how to reduce scandals here, I recommend it.

Cheesed off yet?

I'm fairly certain it was not my blog posting of Sept. 26, 2012 that prompted the Canadian Dairy Commission, a legal and government approved cartel in Canada, to lower their mozzarella prices.

Back then I wrote about "Why American Pizza tastes better." My theory was it's because of the cheese, mozzarella prices in the United States are about half what they are in Canada, so American pizza makers are more generous with their cheese. More cheese, tastier and less pricey pizza, it's not rocket science.

About four-fifths of the price of Canadian pizza is because of the cheese. Who knew?

That blog post also pointed out that members of the Niagara Regional Police Department (no less) were caught smuggling cheese across the border. Yes, cheese, mozzarella cheese, not drugs!

Yesterday, Terence Corcoran in the National Post wrote about this dramatic price drop. He pointed out that the price of a kilo block of mozzarella cheese at the Chicago Mercantile Exchange (not that far from Niagara) is about $4.20. In the Niagara area of Ontario (and the rest of the country) it's $8.50 a kilo!

After you've exclaimed WTF!, your next question is why, isn't it? Now you're asking the right question, unfortunately the answer requires you to wade through some government gobbledygook on Supply Management. Good luck with that.

The short answer is, you remember supply and demand, where demand usually determines the price of a scare commodity? Well, in this case dairy farmers and the government are in cahoots controlling the supply and setting a quota for the production of all milk products while at the same time, screwing over all consumers in the country. Milk products are probably one of the most common items in the kitchens of the country - so this is a big screw over.

Corcoran's article is worth the read, even funny in spots, he pulls no punches. The National Post saw fit to make this topic (by Chris Selley) their editorial today here.

Oh, by the way, the price drop of mozzarella cheese in Canada, all the way down to $7.80 a kilo, whoop-dee-do.

Bitcoin Bubble?

The exponential rise and sharp drop in the value of the "virtual" currency Bitcoin has made it into the mainstream media this past week. Even the CBC, official voice of the statist media in Canada, had a reasonably (for CBC) unbiased story here.
The value of a Bitcoin has been extremely volatile of late, possibly because of the European monetary crisis and the little wrinkle that Cyprus created.
This commentary in Forbes magazine addresses the volatility. Of course, there has also been considerable volatility in gold lately, but I'm not going to pretend I know why. I think like gold, Bitcoin is not going anywhere, it definitely serves a purpose and has a niche like the Forbes article suggests.
Will Bitcoin become a widely accepted and used currency, something you might use to pay for your dry-cleaning? Who knows?
Below is an interesting interview with an Austrian School business professor that my daughter posted here.

The rise of the Bitcoin: At what point should we take this seriously?

As one of the world’s first online currencies gains momentum and headline counts, Dr. George Bragues, Acting Vice-Provost and Program Head of Business at the University of Guelph-Humber, offers his thoughts on the viability of virtual mining.

We know that these coins are ‘created’ through a series of complicated computer programs through a sort of digital mining process. How does money emerge spontaneously?

This speaks to the idea that there was no great person who consciously decided, let’s have money. Throughout history, money has emerged spontaneously, through an unplanned process. It started when people first specialized in a trade, or made something that they could then use to trade for something else they needed. And eventually, without any central authority’s designation, people came to converge on a class of objects, like precious metals, that everyone was willing to accept in exchanges.

Whatever object that’s agreed on as currency ultimately needs to have a few key features for it to work. It needs to be divisible, it can’t be perishable, it needs to be portable, and it needs to be relatively scarce so that it doesn’t lose value. The Bitcoin ultimately has these key features.

Despite Bitcoin currency having been developed a few years ago, it’s become a sensation in recent weeks as the exchange prices have surged and plummeted, with fingers pointing toward the financial instability in Cyprus as government there has been interfering with peoples’ savings. What’s the significance of this?

The Cyprus situation basically raises questions about the integrity and safety of the fiat currencies of the world. It suggests that if you have all this money in dollars or euros or pounds stashed in banks somewhere – that if and when these banks get into trouble, you could suffer a big financial hit. So against this backdrop lies a demand for another form of currency that would not be subjected to this problem. And that’s the Bitcoin.

The Bitcoin is not managed by a central bank, like the euro or the US dollar. Its supply is also limited to 21 million, with about 11 million currently in circulation. This essentially replicates a gold or commodity-type of money – meaning, the supply is limited by its availability. And just as gold needs to be mined, so, too, does the Bitcoin. The main difference obviously being that with gold, the mining is a physical process, whereas mining a Bitcoin is intellectual where you have evermore complex mathematical problems that need to be solved.

The supply of this currency – instead of being managed by central authority that could potentially lead to Cyprus-like problems – is left to a market process, where people will mine it to the extent that they see profit in it. There’s already been commentary among respectable analysts that Bitcoin currency should be a part of your financial portfolio.

It’s been recently reported that the Winklevoss twins – infamous in their battle against Facebook founder Mark Zuckerberg – have been building up their stock of Bitcoins, adding to the idea that this currency seems to have surpassed the experiment phase and is now accepted by professional investors. Yet it seems despite all the hype, the big question remains: Should this currency be taken seriously?

Perhaps not too seriously. I hate to use the cop out line, ‘only time will tell’, but at this point I find it very intriguing. In order for it to be taken more seriously, we need to see that it can embody the characteristics of a true spontaneously-emerged money. Which means first and foremost, it needs to be more widely accepted.

We need to reach a point where the dry cleaner says, ‘that’ll be three Bitcoins, please’, and we’ll pull out our phones with our Bitcoin app – and ultimately walk away with our dry cleaning. That’s theoretically possible – we’re probably already there from a technology standpoint. But for now, it’s really more of an investment vehicle. In order for it to be really taken seriously, it will need to become a consumer goods vehicle as well.

Are virtual currencies here to stay?

For e-commerce purposes, I think virtual currencies are here to stay; they’ve already proven the test of time. But for them to go into the physical world? Wow. I think governments would have a real problem with that. I think we have to recognize that it’s no accident governments today control the money supply. The major reason for this is because it allows them to influence the economy in politically preferred directions. So to have a virtual currency getting accepted out there would mean a loss of control on the part of the government over a key lever over the economy.

The Bitcoin’s decentralized nature would ultimately be the big problem governments would have; and given what’s going on in the world, the same reason why people seem to be liking it. All that to say – I haven’t mined for any.

University of Guelph Humber Business Program