Archive for the Blog Category


December 2017

So let me see if I have this straight…it is a commodity made available in limited amounts by its creator.  It serves as a store of value independent of sovereign currencies and is put into circulation by miners who bring labour and resources to bear to extract it.  The amount of both resources and labour that must be deployed to extract it becomes greater as the remaining supply decreases, and it commands a trading value that is extremely volatile but that nonetheless consistently far exceeds any obvious core intrinsic value (i.e., it cannot be consumed for sustenance, used for building shelter, forged into usable tools, etc.).

Bitcoin?  Well, maybe, but I was talking about gold.  But the fundamental similarities between the two sure seem to put to rest any notion that the current Bitcoin phenomenon is something novel in the annals of global commerce.  In fact, the only aspect of the story that differentiates these two “commodities” is the veneer of legitimacy claimed by gold by its historical connection as the value base for sovereign currencies and the current inclination of sovereign nations to continue to maintain a portion of their Treasury reserves in gold.  If at any point in this current mania the Treasury of a major nation stepped up to establish a floor demand by deciding to maintain a Treasury balance in Bitcoin, these two alternate value stores would be virtually identical in their relationship to global finance.

In fact, one could easily argue that, notwithstanding that it cannot be melted down and molded into jewellery, Bitcoin represents a superior alternative to sovereign currencies given the ease and verifiability of Bitcoin-based transaction settlement that goes with its status as a virtual currency maintained on a decentralized blockchain ledger.  And sure, the anonymity of Bitcoin makes it an ideal medium of exchange for the proceeds of criminal enterprise, but the lure of gold has forever been the inspiration for larceny.  Neither of the two nor fiat money itself can claim that it has no close connection to vice.

What we all see and many loathe in the phenomenon of Bitcoin is not anything inherent in Bitcoin per se, but rather the obvious irrationality of a market that places an ever higher value upon anything that has no intrinsic value beyond that which we believe a greater fool will attribute to it.  It is only when and if the mania becomes so complete that we cease to see that value of Bitcoin, like that of all currencies, is always and only what we believe the person with whom we wish to transact thinks it is.

Who knows – fifty years from now the modern retelling of the Christmas story might see the traditional frankincense and myrrh accompanied by a gift of Bitcoin borne, un-ironically, by a Wise Man.  But for now…



November 2017

As I was reading the weekend paper last week, I noticed a short piece summarizing the most impactful life choices that individuals could make to reduce their carbon footprint.  Intrigued by the conclusions, I tracked down the study from the Centre for Sustainability Studies in Sweden from which it was quoting.  The study, co-authored by UBC researcher Seth Wynes and Kimberley Nicholas, undertook a comprehensive review of the carbon impact of lifestyle choices made by individuals in developed countries and compared the results against the environmentally-positive choices that are most commonly advocated by high school science textbooks.  High school textbooks were selected as the counterpoint on the theory that it is the choices of this emerging generation that are still sufficiently malleable to make a difference in the effort to reduce carbon emissions.

The results reflect a truth that is perhaps even more inconvenient that that first exposed by Al Gore.  By far the most significant lifestyle choice that one can make to reduce the growth of atmospheric carbon is to have no children, or at least to have no more than two children per woman.  This decision alone, cascaded through multiple generations with conservative assumptions about the reproductive behaviour of any one child, results in a carbon reduction that is almost 25x greater than living car free, more than 35x greater than eliminating transatlantic air travel and more than 70x greater than shifting to an entirely plant-based diet.  And those are the next four largest carbon-sparing personal choices!

What about shifting to an electric car, recycling and using energy efficient light bulbs?  The shift to an electric car only reduces by half the carbon burden that a car imposes on the environment, and is accordingly only 1/50th as effective as having one less child.  Consistent recycling would make 1/300th the impact of one fewer child.  And the upgrade to energy efficient light bulbs; 1/600th.

Despite this reality, Wynes and Nicholas found that high school text books were far more consistent in advocating electric cars, recycling and energy efficient bulbs as environmentally responsible behaviours, and NEVER referred to smaller families as a relevant strategy at all.  It is no wonder that letters to the editor in newspapers scolding oil companies so often begin with “as a mother of five wonderful children, no one is more committed to putting a halt to our addiction to carbon than I”.  Come to think of it, those letters also often begin, “as one who has regularly traveled to the most remote places on earth, I have seen first hand the devastating changes that our carbon addiction is bringing to the most vulnerable corners of the planet”.  Wynes and Nicholas must roll their eyes.

The inconvenient truth is that the next generation is far more likely to be Tesla driving, dutifully recycling families of four that eat their steak dinners under LED light as they review the photos from their most recent jaunt to Europe than childless, transit-riding stay-cationing vegans.  And it is that reality, not unbridled corporate capitalism, that presents the most daunting challenge to any effort to find effective solutions to mitigate anthropogenic climate change.


October 2017

We hear a lot these days about making the Canadian tax system fairer.  Fair enough.  Who can be against fairness?  Of course, the measure of fairness can be a tricky one.  Proponents of flat rates of taxation can offer convincing arguments in support of the notion that progressive rates of taxation, long the hallmark of most Western income tax regimes, are themselves unfair.  Under a flat rate of tax, individuals pay more absolute levels of tax as their income rises even if the percentage rate applied is the same for all taxpayers.  Provided that the threshold at which an individual begins to pay tax is set appropriately to avoid the inefficiency of tapping those for whom the redistribution made possible by taxation is intended, a flat rate is the fairest basis for taxation.  Sounds fair enough.

In response, proponents of progressive tax rates argue that the overly complicated web of tax expenditures put in place for a multitude of policy objectives can be and are exploited by the wealthiest taxpayers to exclude from taxation portions of their income that are far outside of the policy intention of the claimed exemption.  This “unfairness”, they argue, is the basis for progressive taxation, through which the systemic unfairness arising from complex tax rules and unequal sophistication and access to expert advice can be mitigated, albeit rather bluntly.  I can see that; fair enough.

But now the Liberal government has asked the obvious follow up question.  Between individuals earning the same income, there can be those that utilize those policy exemptions in unintended if not unforeseen ways and those that do not.  Is it fair that those that avail themselves of structures and strategies to exempt from taxation portions of their income that were not intended to enjoy such benefit pay less tax than those who out of ignorance, altruism or laziness do not?  That doesn’t sound fair.

So we begin to plug loopholes, by taxing passive income earned by private companies and cracking down on income sprinkling to family members through such companies.  Sounds fair enough.  But what about those who entered into businesses, priced goods and services, built expense structures, including wages levels for their employees, and created retirement and succession plans on the assumption that the tax policy applicable to their venture would remain as it had for more than a generation.  Sometimes fairness requires that even the unwinding of unfairness must be done in a fashion that does not punish those who did not make the rules and only followed the well-established interpretive lead of others.

And what about those who generate and perpetuate their wealth not from income but from intergenerational capital gains?  Structures of no less complexity than those available to professionals and small business owners are invariably used by high net worth families to defer if not avoid the intended recovery of capital gains tax on the transfer of the benefit of accumulated property between generations.  Is our tax system intended to favour those who inherit their wealth above those who generate it from active businesses?  That doesn’t sound fair.

The latest trial balloon of the new fairness doctrine to be floated was the need to crack down on employees who enjoy discounts on goods or services provided by their employees without the inclusion of a fair market value taxable benefit.  A bridge too far, the public resoundingly cried, and the Liberal government just as quickly agreed.  But why?  It is the employer, not the employee, that benefits from this policy exception.  Employers can effectively recruit and retain employees with incremental value for which their cost is less than the retail benefit conferred upon the employee. The employee gets a portion of his compensation in a form that may not address his current needs, but accepts it only because he receives it at a below market price and he does not pay tax on it.  If all such discounts were included as benefits, employees would demand that they receive such compensation in cash and employers would, in an efficient market, have to increase wages by an amount equal to the pre-tax value of the discount.  That sounds fairer, doesn’t it?

That’s the problem with addressing tax fairness concerns.  You invariably exacerbate some other aspect of unfairness if you address them one at a time.  But there are so many and they are so hard wired into our business and personal financial structures that passing one omnibus clean up tax code amendment that would be applicable with immediate effect is neither possible nor advisable.  Perhaps that is why successive governments have come to the conclusion that maybe where we are is indeed “fair enough”.