Worthwhile Canadian Initiative

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Public Policy and Job/Publicity Opportunities for Economics Students

Yesterday NDP leadership hopefull Brian Topp released a taxation policy paper [PDF].  Sun News interviewed Topp last night and I acted as a responder - video available here.  One particular item of interest is the introduction of a new 35% tax bracket starting at $250,000 (the existing highest tax bracket starts at $132,406 in 2012 and has a marginal tax rate of 29%).  The move is said to raise $3 billion, though their math is not shown - the footnote on the figure reads Calculations from “Income Statistics 2010 – 2008 Tax Year” Basic Table 2A, Canada Revenue Agency.

Why has (private) debt increased?

I'm not talking about government debt. I'm talking about the debt of households and firms. And I'm talking long run, not just the last few years. Over the last several decades, the ratio of debt to GDP has increased a lot. Not just in Canada, but in most rich countries, as far as I know. Why?

I don't have a good answer to that question. Or rather, I have several answers, but I don't know if any of them are good answers. I'm not sure if any of the effects I'm talking about are big enough to matter. And I'm not sure if they fit all the facts.

So I'm going to crowd-source the question.

I'm a bit hesitant to do this, because I know that this is one of those questions that excites popular opinion. And sometimes (not always) excited popular opinion just doesn't make sense. SO PLEASE READ THIS BIT FIRST:

Real wages during the recession

I've seen a few stories about recent trends in wages, and too many of them seem to be trying to make a big deal out of movements that - when in put in context - are really too small to say much of anything.

[Updated in an almost-certainly futile attempt to combat confirmation bias.]

The political economy of nominal wage targeting

WARNING: if you are not a macroeconomist you may not understand this post, even if you think you do. This is especially true if you are not a macroeconomist but think you know something about "political economy". (When I hear the words "political economy" I usually reach for my shovel.*) This post is an experiment. You, the reader, may be part of that experiment.

This post is partly about mutual incomprehension between macroeconomists and non-economists. But it's written mainly for an audience of macroeconomists. So stop and think before you come out swinging wildly in the comments.

What is actuarially fair insurance?

Actuarially fair insurance has an expected net pay-off of zero. From a consumer's point of view, an insurance contract is actuarially fair if the premiums paid are equal to the expected value of the compensation received. This expected value is, in turn, defined as the probability of the insured-against event occurring multiplied by the compensation received in the event of a loss.

Blue sky money one - the dual mandate

Leland Yeager's (ed.) "In search of a monetary constitution" was the book that most excited my thinking about monetary economics as a PhD student. He asked the contributors to the volume to design a monetary system from scratch. He told them to think "blue sky". I can't remember all the contents. The answers given were less important than the question he asked. It forced you to think deeply about what you wanted a monetary system to do.

I may do more posts like this, so I have called this post "Blue sky money one". I will explain the "dual mandate" bit later.

Darwin Awards, and other random thoughts on the Euro

1. Is the European Central Bank, or maybe the whole EU, a good candidate for a Darwin Award? There doesn't seem to be a category for institutions that bring about their own demise through their own self-destructive behaviour, but perhaps there should be. In the very long run we should perhaps be thankful for dysfunctional systems' destroying themselves. But in the short run they tend to take a lot of other people and institutions down with them.

Could the failed German bond sale be good news for the Euro?

File this one under "desperately looking for a silver lining in the unfolding disaster".

Suppose, just suppose, that all 17 Eurozone countries were identical. Suppose they were all at the Eurozone average. Suppose they all faced the same default risk and moderately high interest rates on their government bonds. What would the European Central Bank do then?

Provincial Government Health Spending: The Equity Dimension

The meeting of the federal and provincial/territorial health ministers in Halifax on Thursday will be preoccupied with the sustainability of health expenditures and the coming negotiations over the renewal of the health care accord.  Naturally, the provinces want to ensure that federal transfers continue to rise to meet their needs while the federal government will be focused on the rate of increase of its health transfers as well as the need to ensure value for money from those transfers.

The rise in provincial government health spending and the tendency for its growth rate to outstrip revenue growth has been well chronicled.  However, another dimension to health spending is its distribution. 

The inflation fallacy

Sometimes I despair. Sometimes I wonder if the inflation fallacy is at the root of all the US and Eurozone troubles. It's so easy to get popular support for the idea that printing money will cause inflation, and inflation means a fall in our real income. So it's much better to have high unemployment, low employment, low real output, and errrr, low real income, than to risk having low real income.

Tightening money and widening Eurozone spreads

How do we know the Eurozone crisis has been getting worse over the last few days? The indicator that I watch most closely, and I think others watch most closely, is the yield spread between German government bonds and the bonds of other Eurozone governments. If those spreads widen, it means the crisis is getting worse.

On 'first-order' and 'top-end' inequality, and why the distinction is important

The debate about income inequality seems to be happening at two levels, which I'm going to label "first-order" and "top-end" inequality.

1. First-order inequality is visible in standard measures such the gini coefficient, and shows up as an increase in the gap between average and median incomes.
2. Top-end inequality refers to the share of income that goes to those whose income puts them above the 99th percentile and beyond.

What could we do better?

We're sending the blog in for a tune-up. We're planning to tidy up the side-bar, make the "search" function easier to find, and do a few other small tweaks. 

What changes (if any) would you like to see? 

Instrument rules, target rules, NGDP, complexity and learning

At one extreme you have pure discretion. The central bank does whatever it thinks is best.

At the other extreme you have an instrument rule. The rule specifies exactly how the central bank should set the monetary policy instrument, conditional on the indicators (i.e. conditional on its information). The Taylor Rule is an example of an instrument rule*; it specifies the exact setting of the interest rate as a function of recent data on output and inflation.

Somewhere in the middle you have a target rule. The central bank announces a commitment to a target, but uses its discretion on how to set the instrument, given all the information provided by the indicators, to hit that target. All inflation targeting central banks, AFAIK, fall into this category.

Worthwhile Sumnerian Initiative?

Spotted at Marginal Revolution - a proposal by Scott Sumner:

Replace the corporate tax with a payroll tax of x% on everyone making more than $100,000/year. Have x% be the tax rate that replaces the lost corporate tax revenue. That would help the poor, it would help the middle class, and it would help the rich. What’s not to like?

Thoughts below:

Could you pass Eco 100?

My best friend's son is taking Eco 100. While studying for his midterm exam, he encountered this question: 

True or false: There is no difference between these two equilibrium equations in Eco 100 consumer theory as one equation can be transformed mathematically into the other (a) MUx/MUy=Px/Py (b) MUx/Px=MUy/Py.

What do you think? Is this statement true or false? Please vote here (only the first 200 answers will be recorded.) 

Seaways and Separatism

Like every Canadian my age, I was taught about the St Lawrence Seaway in school. But I never fully understood why it was built or how it worked. So, while in Montréal this past weekend, I decided to cycle the length of the Lachine Canal, and around to the Lachine Rapids (pictured on the right), to see things for myself.

Canada's geography explains Canada's history, and my weekend cycle trip made lots of things make sense. Montréal is where it is because no sailing boat could ever make it up the Lachine rapids. The St Lawrence Seaway was built because no tanker could ever make it over those rapids, and the existing canals were too small. 

Politics and Taxes

I wanted to weigh in on Stephen Gordon’s post on the Ontario HST reduction but found my entry in the comment box growing so here is a post instead.

Why are the Conservatives and more to the point the NDP supporting what seems like a redistribution to higher incomes?  Well, I think it comes down to two reasons - both political.  The first is both parties made reducing the HST part of their campaign platforms and are now following through because it is the nature of the political game to oppose the government.  The second reason is that while more of the total savings from the reduction will go to the upper incomes, as a share of income it is relatively more important for the lower incomes. It is therefore politically visible.

The ECB's internal contradictions

The Eurozone news is really depressing. I think things are going to be very bad very soon. I don't have much to say that I haven't already said in previous posts. But thought I would add this anyway, FWIW.

The ECB doesn't like inflation uncertainty; it wants to keep inflation predictable and just below 2%. The ECB doesn't like buying the bonds of Eurozone governments. The ECB, presumably, wants to preserve the Euro and preserve its own existence.

Everything the ECB is currently doing seems almost designed to lead to the exact opposite of what it wants.