Worthwhile Canadian Initiative

Walras' Law vs Monetary Disequilibrium Theory

Walras' Law says that a general glut (excess supply) of newly-produced goods (and services) has to be matched by an excess demand for some other good. But it could be matched by an excess demand of anything that is not a newly-produced good. It could be an excess demand for money. Or it could be an excess demand for: bonds; land; old masters; used furniture; unobtainium; whatever.

Daniel Kuehn calls this the "Whack-a-mole" theory of general gluts. The excess demand that matches the excess supply of newly-produced goods could pop up anywhere.

Monetary Disequilibrium Theory says that a general glut of newly-produced goods can only be matched by an excess demand for money. There's only one mole to whack. Money is special. A general glut is always and everywhere a monetary phenomenon.

In a monetary exchange economy, Walras' Law is wrong; Monetary Disequilibrium Theory is right. We live in a monetary exchange economy. Walras' Law is the worst fallacy currently taught in economics as gospel truth.

Why is Walras' Law wrong? Why is money special? That's what this post is about.

An Aging Society: Another View

The debate over the sustainability of public health care has often focused on an aging population as one of the key drivers with apocalyptic scenarios of a silver tsunami of seniors washing over the health care system and bankrupting the system.

A preliminary estimate for Canadian 2011Q1 GDP growth

Statistics Canada released their estimates for monthly GDP growth in February: a decline of 0.2%. This is a disappointing number, but when combined with the strong January number and the increase in hours worked in March, my toy backcaster that uses the first two months' GDP data and the employment numbers in the third month (most recent exercise here) to get a preliminary estimate for the most recent quarter produces an estimate of 3.8% GDP growth in the first quarter of 2011. The interquartile range is [3.5 , 4.1], and the standard deviation is 0.5%.

 

Collective Disasters and Individual Responsibility: Lessons from the Kobe earthquake

Japan's 1995 Kobe earthquake resulted
in the loss of 6,432 lives, and the complete destruction of over one hundred thousand buildings – a loss of homes comparable to that caused by Japan’s recent tsunami. 

The people of Japan rebuilt then. Can they rebuild now?

(In the pictures: a post-earthquake collapsed expressway; Kobe's expressway today).

Resolving the U.S. Fiscal Crisis

The current debate in the United States over their budget deficit and debt does not appear to be generating solutions that will solve their problem anytime soon.  According to the Congressional Budget Office’s analysis of President Obama’s budget proposals, the deficit under the President’s proposals would at first fall, but after 2015 would begin to rise. 

Functional Finance vs the Long Run Government Budget Constraint

(I had been planning to write this post before Steven Landsburg started a whole blogosphere argument about what taxes are for. Honest!)

Functional Finance says you only use taxes if you want to reduce Aggregate Demand to prevent inflation. The Long Run Government Budget Constraint says you use taxes to pay for past, present or future government spending. They sound very different. They aren't.

There's a general principle in economics: first you eat the free lunches; then you  look at the hard trade-offs. Functional Finance says "first eat the free lunches". The Long Run Government Budget Constraint says "then look at the hard trade-offs".

Musings on Good Friday

Today is Good Friday, the end of Lent, the Christian period of fasting or sacrifice. In Europe, it was once traditional to fast, or give up eating animal products, for the duration of Lent.

That traditional sacrifice is the source of some well-known Easter rituals. We're celebrating the end of Lent today with hot cross buns - spicy, fruity, sweet breads. We celebrated the start of Lent with pancakes. Both foods serve the same function - they are ways of using up the butter, eggs and milk that can't be eaten during Lent. (Mardi gras - fat Tuesday - gets its name  from the traditional practice of using up fats on that day).

Intelligent Government in Canada -- Ian Stewart Festschrift

I have 300+ exam papers to grade, and simply don't have time to do a proper post on this. (I don't really have the breadth of knowledge required either).

Anyone interested in public policy in Canada, from a mostly economic perspective, would have benefited greatly from attending the conference (organised by the Centre for the Study of Living Standards) I've been at this last two days. The next best thing would be to read the papers presented. So in lieu of a real post, I'm going to provide a link to those papers.

Ian Stewart, now retired, said he spends his mornings reading economics blogs. Including this one, I'm very chuffed to say.

Canada’s Kobyashi Maru Test

In the Star Trek universe, one of the curriculum requirements for Starfleet Officer cadets is the infamous Kobyashi Maru test  - the test of ultimate character and command ability. 

A rant about EI premiums

It's her first job. She paid $105 last year in Employment Insurance premiums. But she worked fewer than 910 hours. So she wouldn't be eligible to claim EI, even if she was laid off. It's not fair that she has to pay premiums, but receives no entitlement to benefits in return.

What's the best way to scale grades?

It happens. An exam question is not clear, or more challenging than intended. The exam is marked by an over-zealous TA. Or perhaps the students haven't studied as hard as they should have.

As a result, the students' grades are, in some sense, too low - they do not accurately convey the students' level of ability or understanding of the material, or are lower than grades given to comparable students with similar levels of knowledge elsewhere in the university.

So the professor scales the grades.

But there are at least three ways of scaling grades, each one of which has different distributional implications.

Garth Turner bleg

There's a job needs doing, but I'm not the best person to do it. Because I was never that good at variances and covariances and CAPM and stuff. One of you finance guys would be much better.

Understanding Victim Fine Surcharges

In Canada, people who break the law pay a “victim fine surcharge.” For federal offences, the surcharge is 15 percent of any fine imposed. For criminals who are not fined, a set surcharge of $50 or $100 is imposed, depending upon the severity of the crime. The funds raised through these fines stay in the province where the offence occurred, and are used to fund victim services.

The Conservative party platform promises “to double the victim surcharge.” According to the platform, in a majority of cases, the fine is not imposed: “Criminals are let off the hook, and victim support services are left without adequate funding.” Therefore the Conservatives promise that, if elected, they will make the victim surcharge “mandatory in every case without exception.”

Someone is Getting Health Spending Under Control

The sustainability of provincial government health spending is a big issue and drug spending in particular has garnered a fair amount of attention.  Whereas in 1975, drug spending only made up about 2 percent of public sector health spending in Canada, today it makes up nearly 10 percent and indeed has been one of the fastest growing health expenditure categories. 

Reverse-engineering the MMT model

I'm trying to keep this as simple as possible, so it's accessible to second-year economics undergraduates.

Many theoretical papers I read are full of impenetrable (to me) thickets of math. So I reverse-engineer the model. I try to figure out what the underlying model must be in order for the paper's conclusions to make sense.

Many Modern Monetary Theory posts I read are full of impenetrable (to me) thickets of words. So I have reverse-engineered the model (with the help of Steve Randy Waldman's blog post and Scott Fullwiler in comments on that post). I think I have figured out what the underlying model must be in order for MMT's conclusions to make sense.

I don't think my model is a straw man. It is a stick-figure. A very simple caricature that shows only the bare bones, but is still recognisable.

Does vote swapping increase efficiency?

Liberal voters in rural Alberta, Conservative voters in central Ottawa, and Green Party supporters across the country have one thing in common: their votes are almost certain to have no impact on the outcome of the Canadian election.

Vote swapping websites offer these voters some hope of political power. A voter can register at votepair.ca or other sites  and find a person living in Saanich-Gulf Islands willing to vote Green in exchange for, say, an NDP vote in a central Toronto riding.

What can we learn from a random sample of land lines?

Every day throughout the election campaign, new poll numbers are released. Nanos Research, one of the leading polling companies, describes its methodology:

A national random telephone survey is conducted nightly by Nanos Research throughout the campaign. Each evening a new group of 400 eligible voters are interviewed. The daily tracking figures are based on a three-day rolling sample comprised of 1,200 interviews. To update the tracking a new day of interviewing is added and the oldest day dropped.

The margin of error for a survey of 1,200 respondents is ±2.8%, 19 times out of 20.

The respondent sample is stratified geographically and by gender. The data may be weighted by age according to data from the 2006 Canadian Census administered by Statistics Canada. 

The point is: it's a random sample of telephone numbers - it's not clear precisely which telephone numbers, but numbers associated with land lines, and listed in telephone directories, are more readily available to pollsters than numbers that are not.

It's not a random sample of the Canadian population. 

America's Dangerous Debt

The budget turmoil in the United States is certainly attracting a lot of attention and of a kind it is unaccustomed to given its global power status.  The International Monetary Fund has just urged the United States to outline credible measures to reduce its budget deficit as well as a plan to reduce its massive debt levels as it approaches a 14.3 trillion dollar limit on its borrowing authority. 

Worthwhile Survey Initiative

This will change everything. Please participate in our WCI political poll. 

Click here to take survey

Only one response is allowed per IP address; your IP address is not stored in the poll results (we can't see it). Update: I've fixed the "skipped question" problem. Here is a summary of the results so far: Survey Summary

Tax choices in the OECD

The CBC's vote compass has attracted a certain amount of attention and not a small amount of controversy. I like these sorts of exercises, even if the questions aren't always well-posed. So here are some 'tax compasses'. I'm not going to even try to set up some sort of interactive questionnaire, because everyone's preferred tax rate will be zero across the board (unless there are questions such as 'what tax rate should other people face?'). Instead, I'll use scatter plots to show the choices Canada has made, and put them in context with the other OECD countries. All data are taken from the OECD tax database.