Worthwhile Canadian Initiative

The Agenda on the Limits to Economics

Last Friday, TVO's show "The Agenda" broadcast an hour-long discussion on the limits of economics, sparked by Dan Ciuriak and John Curtis's working paper "What if everything we know about economic policy is wrong?"

The discussion featured University of Western Ontario economist David Laidler, Barnard College's Perry Mehrling, Thorsten Koeppl, a professor of economics at Queen's University, and Don Drummond, a Canadian economist with extensive experience working in government and industry.  The video podcast is available here. (Scroll down to "Economics in Uncertain Times"). Nick thinks it's worth watching.

A preliminary estimate for Canadian 2011Q3 GDP growth

The August 2011 GDP numbers are out, so it's time for my quarterly attempt to provide an estimate for quarterly GDP growth a month before Statistics Canada releases its first estimates - the most recent exercise is here. This is done by using simple linear regression model of monthly GDP growth on monthly LFS data for employment and hours worked to produce an estimate for (in this case) an estimate for September 2011 GDP. This estimate is then combined with available monthly GDP for July and August to construct an estimate for quarterly GDP for 2011Q3.

The number I get is an annualised growth rate of 3.1%; here is a history of the forecasts generated by this methodology compared to the preliminary StatsCan estimates and the most recent data available:

Whatever happened to black cat toffee?

Back in the day, name brand chocolate - Coffee Crisp, Mars bars - made up a small percentage of the average trick-or-treat haul. I remember getting candy apples, rockets, tootsie pops, suckers, caramels, "boiled sweets" (hard sugar  candy), raisins and the dread black cat toffee. Nothing - in terms of quality or in terms of quantity - like my kids pull in on October 31st. So why are Hallween hauls bigger and better than ever?

Paul Krugman and inflation pessimism

Paul Krugman believes (I'm pretty sure) that the IS curve slopes down. Getting the US economy to a higher equilibrium level of output and employment through monetary policy alone means a real interest rate that is lower than it is now. And since the nominal interest rate can't fall any lower, the only way to lower the real interest rate is to increase actual and expected inflation.

So he thinks that an NGDP level-path target could work, but could only works because it increases inflation. "Still, NGDP is arguably mainly a relatively palatable way to state a strategy that’s ultimately about something else." That "something else" is higher inflation and/or an increase in the size of the Fed's balance sheet.

But suppose the IS does not slope down. Suppose it slopes up?

Negative natural rates of interest and NGDP targets

My colleague and co-blogger Frances Woolley doesn't do macroeconomics and monetary theory. It's not her cup of tea at all. But when I started to write a response to Steve Waldman's very good post on NGDP targeting, I found myself writing about Frances' also very good post on demographics and saving for retirement.

Steve: meet Frances. Macro/money: meet micro (or rather intertemporal general equilibrium theory, minus the usual math).

Eurozone to issue yuan bonds???

Worthwhile Canadian Initiative is not normally a blog for very short posts. We try to be a bit more analytical. But there's really not much one can say about this idea reported in the Telegraph, other than: this is really stupid. The whole Eurozone problem is that each Eurozone country was issuing bonds in what was effectively a foreign currency, and so it lacked an effective lender of last resort. Now, if the Telegraph is correct, the Eurozone as a whole is planning to repeat the mistake, and become just like Greece.

Visions for Universities

My friend and PhD Thesis advisor Peter George was awarded the David C. Smith Award for Significant Contribution to Scholarship and Policy on Higher Education in Canada at a dinner on October 13^th hosted by the Council of Universities.  As part of the celebration, Peter George delivered a speech that drew upon his three-term experience as President of McMaster to reflect and comment on the state and future of university education.  He noted that during the recent provincial election in Ontario, he did not see a vision for higher education articulated by any of the parties and yet he believes that this is what is needed the most. 

Attack of the health care zombies

In his inaugural Economy Lab post, Chris Auld does a superb job of demolishing the idea that a healthy lifestyle substantially decreases demand on the health care system. He calls it the "zombie argument" because:

it has been repeatedly shot, stabbed, and poked at with sharp sticks, but it won't just die. 

People still believe that getting people to stop smoking, say, or to lose weight, will lead to long-term reductions in health costs.

The Fed's Dark Age communications strategy

One sentence in Fed vice-chair Janet Yellen's speech caught my eye:

"Indeed, I believe that the Federal Reserve qualifies as one of the most transparent central banks in the world."

That is total bullshit. The Fed is one of the least transparent central banks in the world.

Ironically, in the excellent paragraph immediately following her bullshit sentence, Janet Yellen tells us precisely why it is a bullshit sentence:

The Bank of Canada revises down its forecast

Not much to add to what's been said elsewhere, except that I've updated my series of graphs documenting the evolution of the Bank of Canada's forecasts.

Revisiting the Sustainability of Post-Secondary Education

I decided to try and dig a little deeper on the issue of the sustainability of post-secondary education spending in Canada by looking at the numbers in real per capita terms and by province.   As I mentioned in my earlier post, while fiscal sustainability is a term generally used in the health care policy debate, it can  be applied to government programs in general as well as post-secondary education in particular.   If real per capita government spending is rising faster than GDP then one may argue that there is a potential long-term sustainability problem. Of course, it can also reveal that there is simply a very strong preference for the particular expenditure category in question if it is rising faster than GDP.

I've decided to focus on only one province to keep things fairly simple.  An examination of the Statistics Canada data on post-secondary education spending for Ontario reveals some interesting trends. 

All Chuck Norris really needs is stamina

This is my fourth and last Chuck Norris post. I'm getting bored with the metaphor too. But there is something many people missed in my last posts. It's important. Andy Harless explains it in his post. I'm going to explain it my way.

Suppose Chuck Norris keeps on fighting for an NGDP level path target year after year. Suppose year after year you bet that Chuck will lose his fight. Your losses if Chuck eventually  wins his fight get bigger and bigger every year, while your gains if he loses his fight stay the same. Eventually you will stop betting against Chuck, even if you think there is only a very small chance he will win next year. If everybody else switches their bet before you switch yours, then Chuck wins his fight, and you lose your bet. So you want to switch your bet just before everybody else switches theirs. So do they. So switch your bet now.

How many Canadians are losing and finding jobs?

A couple of weeks ago, I noted that as far as I could make out from available data, rates of job creation returned to pre-recession levels more than a year ago. This time, I'm going to try to get a handle on the gross flows on the other side of the market - that is, in and out of unemployment. What are the rates at which workers are losing and finding jobs?

Isn't Chuck Norris American?

He doesn't need to apply for a Green Card to do the same work in the US that he's been doing outside the US. Why can't he work in the US too?

The US and Japan do not have inflation targeting central banks. Nobody knows what they are targeting, because they don't say.

Canada, Sweden, Australia, New Zealand, and the UK all have inflation targeting central banks. Everybody knows what they are targeting. They tell us.

The US and Japan have not escaped the Zero Lower Bound on nominal interest rates.

Canada and Sweden hit and then escaped the Zero Lower Bound. Australia and New Zealand never hit the Zero Lower Bound. The UK is still at the Zero Lower Bound, but the Bank of England has nevertheless been able to increase Aggregate Demand and Nominal GDP despite a contractionary fiscal policy. UK inflation is currently above target.

Isn't it at least plausible that these two sets of facts are related?

The unwanted gift

Before markets existed, people used gifts to save and invest, to exchange goods and services, and to pool risk.

Lark Rise to Candleford, Flora Thompson's portrait of 19th century British village life, describes a gift exchange - and its underlying logic - in detail.

Each year every family in the village bought and raised a piglet. The family pig was fed on scraps, acorns, leaves - anything the family could get their hands on - as well as purchased grain. Once fattened up, the pig was slaughtered. But with no refrigeration, how could the meat be kept? 

Did God overinvest in Land?

I had a short argument with Greg Ransom a couple of months back. Greg won. But actually, I wasn't really arguing with him. I was on his side to begin with, though it did help me clarify my views.

Question. "What is the economic difference between capital and land?"

If you answered: "People made capital and God made land", you are wrong.

Why is canine cataract surgery so expensive?

In Ontario, a opthamologist is paid $441.95 per eye for cataract surgery. In Ottawa, the cost of canine cataract surgery is about $4,000. (I cannot give you an exact price, as the Ontario Veterinary Medicine Association's suggested fee guide is not available to non-members).

Why do opthamologists charge more to repair a dog's eye than a human's eye?

E(NGDP) level-path targeting for the people of the concrete steppes

"But what concrete steps will the Fed actually take to raise Nominal GDP? Can anyone tell me that?"

I must have heard that question a hundred times over the last couple of years. And a dozen more times in the last day, ever since Paul Krugman endorsed the proposal to target NGDP. I always imagine it being asked in a gruff Yorkshire accent, by some middle-aged no-nonsense practical man of business with a background in mechanical engineering.

So this is written for the people of the concrete steppes.

Canada's Provincial Debt Divide

The release of the 2011 Federal Fiscal Reference Tables is a good opportunity for me to refresh myself with an assortment of public finance statistics.  What caught my attention this year was the evolution of the east-west divide in provincial public debt. 

China and the Eurozone

My knowledge of what's happening in China is very slight. But from what I've been reading over the last few months (like this today), it sounds worrying.

Others may have noticed this parallel, but just in case you missed it, I'm going to make it.

Compare China vs the US to Spain or Ireland vs Germany, with a lag of about 3 years. The China/US game is about 3 years behind the Eurozone game.