Worthwhile Canadian Initiative

Economy Lab

The email came the day I wrote a post called "Another rant about the Globe and Mail's coverage of economics."

It was an offer "that I hope you can't refuse" - to participate in the Globe and Mail's new feature Economy Lab.

Another day I might have said no, but I could hardly rant about the Globe and Mail's coverage, and then turn down an opportunity to try to improve it.

Stephen Gordon is also participating, and the inaugural post is by WCI regular Kevin Milligan, on hikes to Employment Insurance premiums. (Professor Milligan, only one unanswered question: how do you do so much, so well?)

Since we each contribute just one Economy Lab column every two weeks, we will still have time to keep posting here.

And here's the question: which will have more influence, our WCI posts, or the Globe and Mail columns?

 

Why we should stop talking about inventories when teaching macro

Nothing earth-shattering here. This post is about teaching macroeconomics better. But there's just a chance it might help some of you understand macro a little bit better.

Whenever we teach the Keynesian Cross (income expenditure) model, and the distinction between National Income Accounting identities and equilibrium conditions, we always talk about inventory accumulation. Planned vs. unplanned inventory accumulation. Desired vs. actual inventories. All that stuff. We should stop doing this. It only confuses the students, and may confuse us too. Plus, it makes little sense in an economy where manufacturing is a smaller and smaller share of GDP, and some goods are made to order anyway. We live in a service economy, and a made-to-order economy, where the inventory story makes no sense anyway. So we should stop doing it. And textbooks should stop doing it too.

This is what we should do instead.

Is the stimulus program already being phased out?

The federal government won't be bringing its 2011-12 budget down until at least four months from now, but there's already some discussion about just when its fiscal stimulus should be phased out. The government's current line is that the infrastructure program will end on March 31 as planned, with perhaps a certain amount of wiggle room for projects that may not be fully completed by then. There are suggestions that the recovery is still too weak to sustain such a reduction in aggregate demand.

The budget decision doesn't have to be taken right away, so there's no reason to make a definitive pronouncement on the subject just yet. So I'm going to content myself with some context here.

Targeting the stickiest price.

Suppose the price of apples is sticky, but the price of everything else adjusts instantly to its equilibrium value. There is then an old, and strong, argument that monetary policy should target the price of apples. The economy performs best when all prices are at equilibrium. If the price of apples won't move (quickly) to equilibrium, then use monetary policy to move the equilibrium price to where the actual price is. The price of apples doesn't want to change, so don't make it have to change. Don't wait years for the price of apples to move to where it should be; move where it should be to where it is. Mahommed, mountain.

Is it getting harder to publish?

Another week, another rejection letter. Am I writing bad papers, or is it getting harder to publish?

The End of Finance? The monetisation of everything.

I know it's wrong, or at least deeply problematic, to adopt a teleological view of history: to say that History has an End, or Purpose, and is inexorably driven by deterministic Iron Laws towards that End, with perhaps an occasional hiccough along the way. But I can't stop myself.

What is the End of Finance? Where is it inevitably leading? I think it is leading towards the monetisation of everything.

Should every child in Ontario have the right to attend a Catholic school?

Every child in Canada has the right to attend a free, government funded public school. But some schools are better than others. And the range of choices available to children varies widely - and arbitrarily - across the country.

Five years of Worthwhile Canadian Initiative

The first WCI post was written five years ago today. Since then, the number of bloggers posting here has increased to four and more than 1,000 other posts have been published, along with some 17,000 comments. I take a certain satisfaction in these numbers, so I'm going to indulge in a meta-post below the fold.

When academic publishing goes wrong: the case of missing women and Hepatitis B

This is a story about how something that turns out to be wrong can be published in a top journal, and what happens next.

The Freakonomics team tell good stories, so I'll let them begin. In 2005, they wrote an article in Slate magazine lavishly praising the work of a young economist called Emily Oster. 

Productivity and real wages revisited

Before the recession hit, the overriding concern for the Canadian macroeconomy was our poor record of productivity growth. As the recovery progresses, we can expect this discussion to move back to the forefront of policy debates.

When we talk about the importance of productivity, the point is invariably made that increasing output per worker is the only sustainable way of generating long-run gains in real purchasing power. But it turns out that it is possible to have extended periods of time - decades, even - in which increased productivity isn't sufficient to generate real wage gains. And sometimes, it's not even necessary.

Stag Hunt and macroeconomics

A coordination failure is when rational individual behaviour leads to a bad outcome. Some other outcome would be preferred by all. Keynesians especially emphasise coordination failures, though nearly all macroeconomists say that coordination failures sometimes happen, and say the US economy is in one right now. That makes us optimists. Maybe this isn't the best we can do.

But there are three types of coordination failure: Prisoners' Dilemma; Stag Hunt; and Schelling. Unlike previous recessions, this one is mostly Stag Hunt, with maybe a smattering of Schelling. The 1982 recession was more Prisoners' Dilemma.

What Should Economists Be Teaching Less Of?

Over the past week, we have had a number of conversations about the deficiencies of economics education at the ECON 1000, undergraduate and Ph.D. level.  Depending on the school, a Ph.D. student may never encounter anything on behavioural economics or experimental economics or economic analysis of law.  There are all kinds of things I would love to add to an ECON 1000 curriculum, including an enhanced discussion of imperfect markets, agency theory and Coase's The Nature of the Firm (in other words, my ECON 1000 would be closer to a B-school curriculum, which I guess isn't surprising).

The difficulty is, if you add to a curriculum, you either need to find a way to cram even more material into a course or something needs to be taken out.  I don't know how feasible the former is.  And as for the latter, I've thought about it for awhile and nothing jumps out at me as a "why do we spend so much time on this?" subject.

So my question to you is:

What should be taken out of ECON 1000 / undergraduate / Ph.D. level courses?

How has the crisis changed the teaching of economics?

A must read: The Economist asks a number of prominent economists the following:

How have the financial crisis and recession affected the way economics is taught? How should economic instruction change?

For the 'how should it change' question, my views are closest to that of Harold James.

As far as my own introductory course - in the past we treated monetary policy as the Central Bank setting a target for the Fed Funds rate/overnight rate and didn't worry too much about the 'zero bound' problem, though it did come up in the context in Japan.  Now my course is far more Sumnerian and makes a point that Prof. Sumner likes to make:

People often misinterpret the stance of monetary policy.  As Milton Friedman observed, low interest rates are not easy money, they are a sign that money has been tight. 

As well, we spend a lot more time on the other tools the Fed/BoC have at their disposal.

P-data, Q-data, and L-data

Economists have got lots of P-data and Q-data, and we pay a lot of attention to it. I think we don't have much L-data, except anecdotal, and we don't pay much attention to the hard L-data we do have.

P-data is data on the prices at which goods are traded. Q-data is data on the quantities of goods traded. We've got it, and we use it. And it's good we've got it and we are right to use it. P-data and Q-data are important. But they are not the only data that are important.

What do I mean by L-data? I'm going to come at that slowly.

Another rant about the Globe and Mail’s coverage of economics

One of the featured articles in today’s Globe and Mail is on “Economists and their fairy tale world of prognostication.” 

I don’t mind people taking pot shots at the economics profession – I do it myself. But at least try to get the shot remotely on target.

Clusters and the New Economics of Competition

In response to Prof. Gordon's Some implications of thinking of trade as a form of technology, Paul Friesen wrote:

Actually, I think manufacturing is special in a way most economists fail to appreciate adequately. Manufacturing clusters. If you do manufacturing, you create an environment in which more manufacturing is likely to develop.

Clusters and clustering is one of the major themes in my Global Environment of Business class at Ivey.  I'm giving that lecture in a couple of week so I shouldn't give my thoughts on the subject here (some of my students read this and the last thing I want or need are them parroting my thoughts back to me).  However, if you're interested in the subject here is what I have my students read/think about:

Walt Disney, War and Taxes

In the 1940s, Walt Disney contributed to America's war effort through his propaganda cartoons. In The Spirit of 43, Scrooge McDuck urges Donald Duck to save up to pay his taxes - "it's your dough, but it's your war too." Because "taxes will keep democracy on the march."

The New Spirit is stirring stuff - "for it's your taxes, my taxes, our taxes that run the factories. American factories working day and night, factories making guns, machine guns, anti-tank guns, long range guns, guns, guns all kinds of guns...to blast the aggressors from the seas."

Poor sales MINUS quality of labour

Update 3: I wish I had titled this post: "Labour quality: the dog that stopped barking".

I see something a bit different in that graph that all the macro-bloggers have been blogging about. Sure, I see the "poor sales" that everyone else sees. But what about "quality of labour"? What's important is that "quality of labour" is not seen as the "single most important problem" by more than a very small number of small US businesses right now. It's usually, in normal times, seen as a problem by a lot more businesses. That tells us something important.

Some implications of thinking of trade as a form of technology

Mike's post reminding us of the wonderful story of the Iowa car crop - and its message that trade is best thought of as a form of technology - has gotten me thinking about just how powerful an insight this is, and how we probably should be using it more often when we think of international trade - or even of markets in general.

Greg Mankiw's Ten Principles of Economics -- the tourist platter. And math and PC.

When I first read Greg Mankiw's "Ten Principles of Economics" I thought they were embarrassing. But I really liked the rest of the book, and decided to become a Canadian co-author (along with Ron Kneebone and Ken McKenzie of The University of Calgary). I thought that when teaching I would just skim over the 10 principles quickly to get past them. But I changed my mind. I now spend more time (minutes per page) teaching that first chapter than anything else in the book.

This post is about why I changed my mind, and how I teach them.

Then I go totally off-topic and talk about high school math and political correctness.