Worthwhile Canadian Initiative

A preliminary estimate for Canadian 2010Q2 GDP growth

It's time to update my series of posts (2009Q1, 2009Q2, 2009Q3, 2009Q4, 2010Q1) in which I try to take the GDP numbers from the first two months of a given quarter, mix them with the LFS numbers from the third month, and concoct a preliminary estimate for quarterly GDP growth. The BEA released theirs yesterday (2.4%); here's mine: 2.7%.

Economics, Drugs and Rock 'n Roll

When obscure bands like the Dirty 30s play a gig, they are often paid a percentage of the bar sales. This time-honoured tradition solves two information problems:

1. The owner of a bar may lack the time or the ability to assess a band's quality. But with a revenue-sharing arrangement, that's not a problem - if the band doesn't fill the dance floor, they don't get paid much.

2. Potential patrons may not know the quality of the band either. They'll be reluctant to pay a fixed cover charge to see a band that might be unlistenable or undancable. It's better to pay no cover and a higher price for drinks - that way, you only pay if the band is worth listening (and drinking) to.

It works until a drug like Ecstasy comes along. 

Twitter List of Canadian Economists

I'm putting together a list on twitter of 'Economists who work in Canada and Canadians that are economists.'  Right now it's a very short list:

• Kevin Milligan of UBC
• Rachel Ziemba of Roubini Global Economics
• Stephen Gordon
• Mike Moffatt

Know of any other economists on twitter that I can add to the list?

Anyone can subscribe to the list, which is available here.

What modern art and economic theory have in common

Economic theory and modern art are a lot alike.

They're abstract. When Gainsborough painted a horse, he tried to represent it as realistically as possible. But Deborah Butterfield's Jerusalem Horse #1 looks at first glance like a tangled piece of rusting metal. Then one sees the neck of the horse, and the head, traced out with two lines of steel.

In Praise of Dark Ages

This can't be quite right. But I'm going to run it by you anyway.

An occasional Dark Age is a good thing. We sometimes need to forget. We sometimes need to torch libraries. That's the only way that knowledge can progress.

Paul Krugman defined a Dark Age well. I forget exactly what he said, and where exactly he said it, and I can't be bothered to waste my time to find out. (Which illustrates my point perfectly). A Dark Age is not when we don't know stuff. It's when we don't know stuff we used to know. It might be that individuals forget stuff they used to know. Or, more likely, the old people who knew the stuff died, and the young people never learned it. A Dark Age is when collectively we forget stuff we used to know.

And it's a good thing that happens, sometimes. The optimal amount of forgetting, and torching of libraries, is not zero. (In economics, the optimal amount of anything is almost never zero, nor infinity.)

Cash as the real real option -- to do anything

Option theory was originally about financial assets called options. A put option is a derivative that gives you the right to sell some asset at a pre-specified price. A call option is a derivative that gives you the right to buy some asset at a pre-specified price. They are called options because you have the right, but not the obligation, to sell (or buy). You don't have to exercise the option, if you don't want to. Option theory tries to figure out how much options were worth.

Then people noticed that this could also be a useful way to think about investment decisions in real assets (bricks and mortar etc.), not just financial assets (bits of paper). And "real option" theory was born. Any parent who has told his daughter to get a degree, just in case her career as a rock musician doesn't pan out, is advising her to invest in a real option. She isn't obliged to exercise her option to work as a teacher, but she can exercise it if she decides she wants to, when she has more information about her chances of making it big.

Why a Mandatory Census is Necessary

One talking point I have heard a fair bit the last few days is: "There are a lot of voluntary surveys out there that seem to be accurate. Are you suggesting they're all flawed?"

The answer is that those voluntary surveys rely on a mandatory census and as such, the removal of the census will weaken the value of those voluntary surveys.

Below the fold I'll describe why making the census voluntary will reduce the value of voluntary surveys and lead to too many baseball diamonds being constructed.

Clutch Hitting, Frank Robinson and Opportunity Costs

I think we could all use a lighter topic to discuss. Here's one, courtesy of Baseball Reference. Sean Forman lists the five most "clutch" and five least clutch players in Major League Baseball history. Frank Robinson comes in as the 2nd least clutch, which causes Sean Forman to respond:

I'm going to let someone else tell Frank Robinson about his ranking here.

I don't think Mr. Robinson would be surprised by his ranking. Below the fold I'll discuss why.

Golden classics: great composers, consumers' preferences or economic incentives?

Last night I went to a concert of golden classics - pieces like the Toreador song from Carmen that have the audience humming along. And I started wondering - why, when I go to a classical music concert, do I so rarely hear something written by a living composer? I can think of three explanations.

The federal deficit bottoms out

The most recent numbers from the Fiscal Monitor confirm that the deficit has started to shrink. These data are monthly and have important seasonal factors (particularly at the end of the fiscal year), so I've been tracking the 12-month moving sums. These don't quite correspond to the annual numbers, but they give us a good idea of what's going on.

He's at it Again...

Professor Gordon, that is. This time it's the National Post:

Economists Niels Veldhuis, of the Fraser Institute, and Stephen Gordon, of Laval University, join host Chris Selley for a surprisingly spirited debate on the elimination of the mandatory long-form census.

Also, as Canada's biggest Hogan's Heroes fan (seriously - I do a pretty good Col. Klink imitation, but only after a couple drinks), I got a huge laugh out of this headline, even if I don't think it's entirely fair: Tories try Hogan’s Heroes defence in census feud.

Edited to Add: Messrs. Veldhuis and Gordon spend a fair bit of time in the podcast discussing a U.S. study which compared the effectiveness of a voluntary census vs. a mandatory one. The report is available as a PDF here: Testing the Use of Voluntary Methods. One of the key findings:

The use of voluntary methods had a negative impact on traditionally low response areas, that will compromise our ability to produce reliable data for these areas and for small population groups such as Blacks, Hispanics, Asians, American Indians, and Alaska Natives (see page 13). The current ACS design, based on mandatory methods, results in reduced levels of reliability for some areas and population groups due to low levels of mail response. This is a direct consequence of the additional number of cases that are subject to subsampling. In a voluntary setting, the problem is magnified. The proportion of completed interviews after mail and telephone attempts decreased to less than 50 percent for Black and Hispanic households. This has a significant impact on the total number of interviews and thus, on the reliability of estimates for these population groups.

Rational vs adaptive expectations: a false dichotomy

Arnold Kling has posted another good installment of his Macro Doubtbook. But it contains what I think is a false dichotomy between adaptive (habit) and rational (model-based) expectations. Since Arnold is not alone in thinking this way, I thought I would do a short post to explain why I think it's wrong.

So I'm Not The Only One That Thinks This Way...

From the Toronto Star - Compromise calls for dropping jail time to allow mandatory census to go ahead:

Federal Conservatives are being urged to compromise on their axing of the long census questionnaire, perhaps by repealing the threat of jail time for non-completion or pruning so-called sensitive questions...

Fellegi said he hopes a compromise can be found for the 2011 census next May. For example, he said the provision to jail Canadians who don’t fill out the census paperwork could be repealed since it’s never used.

As Morrissey sang: Stop me if you think that you've heard this one before.

Yes, Libertarians, Census Data Can Be Used To Support Dropping Government Programs Too

During Wednesday CBC's town hall,Terrence Watson asked:

...if the census is only used to _justify_ government programs, but never to shrink or eliminate them, then can anyone see why somebody interested in smaller government -- like me -- would be suspicious of it?

It is a bit of an irrelevant point, because changing the format of the long-form census from a voluntary to a mandatory one isn't going to get you less government, it will only give you worse government.

But if Terrence wanted to see census data used to argue against a government program, all I he needs to do is open an issue of Canadian Public Policy. I picked an issue at random...

Another Chat With Prof. Gordon - Noon EST Today

Yesterday it was the CBC, today it's the Globe and Mail:

Taking questions will be Stephen Gordon, professor of economics at Université Laval in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE). He is also a co-author of Worthwhile Canadian Initiative, a Canadian economics blog that has followed the census dispute closely. And Armine Yalnizyan, senior economist with the Canadian Centre for Policy Alternatives, and author of several articles about the government’s decision.

While I'm on the subject of the media, I would like to thank David Akin for his very kind 'tip of the tuque' in today's Toronto Sun. Thanks David!

Ninety percent worries

This post was written by Simon van Norden of HEC-Montréal

Paul Krugman picked a fight with Ken Rogoff today. The subject is how much to worry about the run up in government debt in the US and Europe. The Financial Times has been running a series of articles on the subject and Krugman claims that Rogoff "has been giving seriously bad policy advice." For macro wonks like me, this is better than the World Cup. Both are very clever men, both work hard to link theory and policy, and both can rightfully claim this kind of macroeconomics/international finance/economic history/growth is their forté.

Census Town Hall - 2 PM EST

Our Prof. Gordon is too modest to announce this event, so I'll do it for him.

CBC Virtual Town Hall: Ending the mandatory long census form.

Join the CBC's national affairs editor Chris Hall and CBC Politics blogger Kady O'Malley at 2 p.m. ET Wednesday, as they host a live virtual town hall forum on the Conservative government's decision to scrap the mandatory long census form.

Chris and Kady will be joined by Nik Nanos, pollster and president of Nanos Research, Roger Gibbins, president and CEO of Canada West Foundation, Laval University economics professor Stephen Gordon and Terrence Watson, associate editor of the Western Standard.

Edited to Add: The town hall is over and a transcript of the chat is at the above link.

Lead Response Time, Signalling and Market Structure

A few months ago I received from Michelle Bennett at Ivey's Executive Development Program an absolutely terrific piece of research - MIT Lead Response Management Study. The study examines one basic question:

When should companies call web-generated leads for optimal contact and qualification ratios?

If I could send one study out to every business in Canada, this would be the one because in my experience Canadian business is really lacking in this area.

Below I'll discuss some of the results of the study and when I like to think of the results in terms of microeconomics (specifically industrial organization).

The economics of census data

One of the surprising things about the census fiasco is that of all the publicy-provided services that small-government advocates could target, the census is very near the bottom of the list of priorities. Many of the services provided by governments could and perhaps should be produced by the private sector. But the economics of databases such as the census aren't the same as the goods that inhabit most economic models, and so the standard market-is-best results of the First and Second Welfare Theorems don't apply. When it comes to things like the census, markets fail.

Toronto Sun Flip-Flops on Census and a Voice of Reason at the Post

From Today's Toronto Sun editorial:

Statistics Canada, which compiles census data, supposedly guards private information like a pit bull guarding a meth lab.

If that is the case, then why is the decision to nuke the mandatory long-form census being condemned by everyone from Michael Ignatieff's Liberals, to municipal politicians, to the Canadian Medical Association, to religious groups and charities?

Is it because the info in the census is not "private" after all?

But what was the Sun's editorial board saying during the last census? I looked it up yesterday and the Sun had exactly two comments:

Too bad, it's the law -- and it's not an invasion of privacy. Governments have been doing a census of some sort since Biblical times

and

Gripes about the census being an invasion of privacy are sadly misguded

The Sun called their current position misguided. You can't make this stuff up.

In other news Tasha Kheiriddin has a fantastic editorial in today's Post. I second her suggestion:

So instead of axing the mandatory long-form census, why not revamp the questionnaire to remove questions of dubious value, or those deemed too invasive? Why not change the enforcement system to be less draconian? Replace the jail term with a fine, or create a list of acceptable exemptions, like those for another mandatory obligation: jury duty. If privacy is a concern, put in additional safeguards to reassure participants that their personal information will never be used against them.