Worthwhile Canadian Initiative

Defence may be a public good. Military spending isn't.

Public goods are, as defined by economists, non-rival, meaning that the cost of an additional person using the good is zero, and non-excludable, meaning that it is technologically impossible, or prohibitively costly, to prevent people from enjoying the goods.

When something is a pure public good, private markets will fail to supply it in adequate quantities. By definition, firms cannot exclude people who don't pay for the good, hence generating revenues is somewhat problematic, and firms will tend to either go out of business, or not go into business in the first place.

Since it is widely accepted that governments have a role in providing pure public goods, the definition of a public good is highly political. For example, to argue that HPV vaccines are a pure public good is to argue that private markets will under-supply the vaccines, so government intervention (and, most especially, government finance) is necessary.

Milton Friedman on the Euro, Inflation Targeting and the Zero Lower Bound, Circa 2000

In 2000 Milton Friedman gave a keynote address to the Bank of Canada, which is available for download here [PDF]. The keynote itself is interesting, but moreso are his responses to a Q&A session, where he talks about issues such as the future euro and monetary policy at the zero lower bound.  Here, without commentary, are some hilights:

We Are Not Alone...

One more bit of quick evidence on manufacturing and its share of GDP - this time, international evidence.  I found some data from the United Nations for the period 1970 to 2010 and calculated the manufacturing to GDP ratios for Canada, the other six G-7 countries as well as Brazil, China, India, Australia and also the Netherlands.

Manufacturing exports vs resource exports

The misguided notion that the shift from manufactured exports to resource exports is necessarily a bad thing has taken ferocious hold on many politicians and on much of the punditry. So I'm recycling something I wrote before to explain why it's wrong.

The Decline of Manufacturing in Canada - 1926-2011: Dutch Disease?

The debate about “Dutch Disease” is focused on the relationship between natural resource export booms, currency appreciation and the decline of Canadian manufacturing.  I decided it was worth hunting up some long-term data on manufacturing’s share of Canada's economy given that my economic history background tells me that over the long-term, the share of the economy in goods production has declined while that of services has risen. 

Who Produces CO2equiv Emissions in Canada

Environment Canada has emissions data on 537 facilities in Canada. As Andrew Leach points out these only cover roughly 35% of emissions in Canada, but they provide some useful data.

Unfortunately the emissions are not ranked by who emits the most.  So I took it upon myself to do so, with some pretty big technical support from Rob Schmidt.  The numbers are as follows:

 

"Does Canada have Dutch disease?" is a question without a meaningful answer

The debate about whether or not Canada has "Dutch disease" can never get very far, because there is in fact no clear notion what it is. As far as I'm concerned, the term has by now been stripped of meaning: people are using the definition that is most convenient for their purposes.

So in this post, I'm going to summarise some of the points that have been raised:

Meetings with Meaning

As we all head into academic conference season, here is some food for thought with a guest post by Steve Morgan. Enjoy. Livio.

Mary Jane and Milton

Milton Friedman - Nobel Laureate in Economics and adviser to Ronald Reagan - supported legalizing and taxing marijuana. Stephen Easton's classic paper advocating marijuana legalization was published by the Fraser Institute. Why do so many right-leaning economists favour marijuana legalization?

Conservative economists typically believe that a person is a best judge of what is in his or her own interests. From this premise it follows that the government should not try to constrain or influence people's behaviour. Yes, marijuana use has well-documented negative side effects, from memory loss to male breast growth. Yet if fully informed individuals decide that these personal costs are worth accepting for the benefits that marijuana use brings, the government should respect that choice. As Willie Nelson says “I smoke pot and it is none of the government's business.”

Those Who Forget History

From today's Globe and Mail:

In the decades prior to 2000, Canada made progress in moving away from being an economy of resource extraction. By that year, as labour economist Jim Stanford has pointed out in an analysis for the Centre for Policy Alternatives, well over half of Canada’s exports consisted of an increasingly sophisticated portfolio of value-added products in areas such as automotive assembly, telecommunications, aerospace technology and more.

But in the past decade, the clock has been turned back. Because of a boom in the oil and gas sector and a range of other factors, the economy has reverted toward being a staples-driven enterprise. 

But were things really so great back then? What were people saying about the low dollar and manufacturing? I decided to have some fun with LexisNexis and CBCA.

Drugs heal, drugs hurt.

There are those who use drugs, and there are those who could, potentially, benefit from drugs. The two groups do not always coincide:

Employment, Economic Comparisons and EU Trade

Despite continually being told that Canada has been one of the top economic performers throughout the recent world recession and financial crisis, we are not content to rest on our laurels and it appears that we continue to strive for better things.  Canada is in the process of negotiating a comprehensive Free Trade agreement with the European Union. My old high school motto - Agimus Meliora - is no doubt also a fitting national slogan. 

Are quantities backward-looking or forward-looking?

I've been reading three things this morning:

Chris Dillow, responding to my earlier post. Chris says that expectations (of future monetary policy) are a "weak lever".

Roger Farmer, showing that lagged stock prices plus lagged unemployment have really good out-of-sample forecasting properties for unemployment.

Paul Krugman, saying:

"As I read it, price and wage setting — as opposed to bond market behavior — are mainly backward-looking, responding to inflation experience rather than attempts to read the central bank’s mind."

I read it roughly the same way as Paul.

Who owns her body?

Girl Model tells the story of a Russian child, Nadya, who goes to Japan to break into modeling. She is 13 years old, alone, powerless, penniless - and speaks not a word of English or Japanese. [Spoiler alert]

Identity Economics

Here are two macroeconomic identities:

1. Y=C+I+G+NX

2. MV=PY

Both are true by definition.

How much do expectations matter?

It is a cliche (among economists) to say that expectations matter. It is even more of a cliche to say that expectations matter for asset prices. But how much do expectations matter? I'm going to do a quick and dirty back of the envelope calculation to show that expectations matter a lot. And that the lower are interest rates, the more expectations matter.

Then I'm going to remind people that money is an asset. Then I'm going to remind people that recessions are always and everywhere a monetary phenomenon, and that recessions are an excess demand for money. So expectations of future monetary policy matter a lot for recessions. Especially when interest rates are low.

The federal deficit is shrinking quickly

During the recession and recovery, I got into the habit of writing graph-laden posts every time there was an important data release. I've gotten out of that habit, but I still keep track. One of the things I track is the federal Department of Finance's Fiscal Monitor, which is a brief monthly summary of federal government expenditures and revenues. There's an important seasonal pattern, so I've been taking 12-month moving sums. The March observations of these moving sums correspond pretty closely to the those of the fiscal year, but the annual numbers can include adjustments for items booked for the entire year although not for any month in particular.

Ulysses of the concrete steppes

Ulysses had to take concrete steps to influence his own future actions. He had himself tied to the mast.

Unlike Ulysses, most of us don't have to take concrete steps to influence our own future actions. Instead we make promises.

Ontario and its Physicians: Richer Than They Think No Longer

Ontario’s health minister Deb Matthews is moving into a major battle with the physicians in the process of trying to get health care costs under control as part of the provincial deficit fighting agenda.  Deb Matthews has on a number of occasions remarked that Ontario’s physicians are the best paid in the country.

A preliminary estimate for Canadian 2012Q1 GDP growth

The February GDP number came out yesterday, so it's time for my quarterly exercise in trying to come up with a preliminary estimate for quarterly GDP growth a month before Statistics Canada makes its first announcement. As regular readers will no doubt be weary of being reminded, the estimate is based on the GDP numbers for the first two months of the quarter along with the information in the LFS release for the third month. The most recent exercise is here.

The number I get for the annualised growth rate for GDP in the first quarter of 2012 is 1.6%.