Many of my favorite bloggers are having a field day with Harper and his "so sue me" line with regards to backing out of the Atlantic Accord.First, let me say that from what I've heard, he's trying to back out of backing out. I don't know how exactly you do that, or why that's better than, just, you know... doing what you said you were going to do, but whatever. I want to give "credit" where it is due.Now, I have a problem with all these Liberal bloggers making political hay out of Harper's weird flip-flop. The problem is this: no one seems to really care whether or not the Atlantic Accords are fair. Let's make 'em run the gauntlet.Now, I've repeatedly asked people to let me know if they have some piece of information that makes this all make more sense, because I am ignorant. I haven't read the "accords." And I don't know what it is I don't know about them. But here's how I understand it.Equalization is designed to bring up the revenues of poorer provinces to a minimum standard in order to ensure similar services at similar rates of taxation across Canada. The problem with a minimum level of revenues is that once the province is below that, they kind of lose the motivation to increase revenues. Why would they? That just means working harder and getting exactly the same results. Hardly seems fair.So the problem that the atlantic provinces have is that if they develop their off-shore oil resources, and take royalties, they will by default lose an amount of equalization roughly equal to the gain in royalty payments, and they end up where they started. That's not good enough, say the atlantic provinces. We want our equalization not to be clawed back. The federal government has repeatedly said "Well, we can't do that, exactly, but we can give you a cash payment that will be equal to the amount of the clawback."That, as I understand it, is the Atlantic Accord.So the question is, is that fair? No, it's not. The federal government has been financing equalization payments to the atlantic provinces on the basis of a principle - we should bring provinces who cannot do it themselves up to a certain minimum to help. That principle, you'll find, is in our constitution. The actual written one. What the atlantic accords argue is that these provinces should continue to get equalization payments even when the formula says they don't need them any longer. Screw the principle, we want our money.If we phrase this question one way: should resource royalties be considered revenue under the federal equalization program, then answering no to that question solves the problem. Frankly, as I've said before, I think there's a strong argument to be made that non-renewable resources royalties are not revenue, but a transfer of wealth from capital to liquid form. But in the absence of a decision to remove non-renewable resource revenues from equalization calculations, we still have the problem. The atlantic accords are still asking for money that the formula says they don't deserve.There is the problem of motivation. The provinces say we cannot develop our natural resources if we're not going to see any benefit from them. And that's true. Well, it's partially true. In reality, the oil companies that would be making the real money off of that oil will still make all their money. Which means all the lucky atlantic citizens who would work for that industry or see the economic spin-off benefits would still get them. The only group that gets screwed is the provincial governments. So this is really the provincial governments holding their own citizens' economic development hostage for the benefit of revenues. Even then, the provincial governments only get screwed until such a time as the revenues from oil exceed the existing transfer payments, after which they're not getting screwed anymore. I don't know how likely that is in the given cases. But despite all those caveats, there's a problem with the equalization program. The equalization formula is designed in a way that reduces the provinces' motivations to develop their own resources and enhance their revenues. I think economists call that the moral hazard.If that's the problem, how do we solve it? Well, we could do something like setting the equalization payments at a multi-year average of shortfall, so that the first X years that the province develops a new source of revenue, they continue to get much of the benefit of the past equalization payments. Whatever we do, though, in order to be fair it has to apply to everybody, and it has to be based on some sort of a reasonable principle that respects the intent of the constitution. Simply arguing, as the atlantic provinces seem to be doing, that they should continue to get the entire benefit of both, just 'cause, is inane. Suggesting that they should get the entire benefit of both for 14 years, as I understand the current disagreement involves, seems totally off the charts. Is inaner a word? Who cares? That's even inaner.So (not including the backing out of backing out), the statements by the Conservatives that getting out of the Atlantic Accord will represent a return to a principle-based equalization program seem to me to be well-founded. What's more, a principle-based equalization program seems like a good idea to me. I like it when everyone can know what to expect from one another, and we all deliver.So we can criticize Harper for having recently discovered principles, but we cannot blithely suggest that what he's doing is necessarily wrong, and promise to undo it if elected. That just puts us in the position of arguing in favour of unfairness because it will get us votes. Canadians deserve better than TWO parties that do that.As for Stephen's suggestion that the province sue the federal government, the province would be ill-advised to take him up on that offer. See, as it stands, the federal government has set a precedent that a government, when it no longer likes an agreement it has made with another government, can simply renege. That, combined with the likelihood that Harper will acquiesce, seems a better result than having something they're likely to get anyway enforced at greater expense, and making all governments so much less able to spout bullshit agreements they have no intention of keeping. NS may be on the short end of this stick, but the stick is there for them to use when they see fit.